-----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, VhH0V89Ot+p/p6JoCNX9US8E8CVgDMNpud1iF+grshNX/hTaZ6Bz5uxEwQ53c+Ei 0G2Ozg3daybEj/+u6e2Ypw== 0000912057-97-001162.txt : 19970120 0000912057-97-001162.hdr.sgml : 19970120 ACCESSION NUMBER: 0000912057-97-001162 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 35 FILED AS OF DATE: 19970117 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECRANE AIRCRAFT HOLDINGS INC CENTRAL INDEX KEY: 0000880765 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341645569 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19939 FILM NUMBER: 97507140 BUSINESS ADDRESS: STREET 1: 155 MONTROSE WEST AVE. SUITE 210 CITY: COPLEY STATE: OH BUSINESS PHONE: 3306683061 MAIL ADDRESS: STREET 1: 155 MONTROSE WEST AVENUE STREET 2: SUITE 210 CITY: COPLEY STATE: OH ZIP: 44321 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1997 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 3728 34-1645569 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code No.) Identification Incorporation or Organization) No.)
155 MONTROSE WEST AVENUE SUITE 210 COPLEY, OH 44321 (330) 668-3061 (Address, including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) R. JACK DECRANE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER DECRANE AIRCRAFT HOLDINGS, INC. 155 MONTROSE WEST AVENUE SUITE 210 COPLEY, OH 44321 (330) 668-3061 (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service) -------------------------- WITH COPIES TO: STEPHEN A. SILVERMAN, ESQ. PETER P. WALLACE, ESQ. SPOLIN & SILVERMAN MILBANK, TWEED, HADLEY & McCLOY 100 Wilshire Boulevard, Suite 940 601 S. Figueroa, 30th Floor Santa Monica, California 90401 Los Angeles, California 90017 (310) 576-1221 (213) 892-4000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. -------------------------- If any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE (2) Common Stock, Par Value, $.01 Shares $ $43,125,000 $13,068
(1) Includes shares of Common Stock issuable upon exercise of the Underwriters' over-allotment option. (2) Estimated solely for the purpose of determining the registration fee pursuant to Rule 457. -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, INC. CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, AND ITEM 501 OF REGULATION S-K
ITEM NO. AND CAPTION IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS - ---------------------------------------------------------------- ----------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..................... Forepart of the Registration Statement; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus......................................... Inside Front and Outside Back Cover Pages of Prospectus; "Additional Information" 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.......................... "Prospectus Summary;" "Business;" "Risk Factors" 4. Use of Proceeds...................................... "Use of Proceeds" 5. Determination of Offering Price...................... "Underwriting" 6. Dilution............................................. "Dilution" 7. Selling Security Holders............................. Not applicable 8. Plan of Distribution................................. "Underwriting" 9. Description of Securities to be Registered........... "Description of Capital Stock" 10. Interests of Named Experts and Counsel............... Not applicable 11. Information with Respect to the Registrant........... "Prospectus Summary;" "Recent Developments;" "Selected Consolidated Financial Data;" "Management's Discussion and Analysis of Financial Condition and Results of Operations;" "Business;" "Management;" "Principal Stockholders;" "Certain Transactions;" "Description of Capital Stock;" "Shares Eligible for Future Sale" Consolidated Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities..................... Not applicable
SUBJECT TO COMPLETION, DATED JANUARY 17, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SHARES [LOGO] DECRANE AIRCRAFT HOLDINGS, INC. COMMON STOCK ($.01 PAR VALUE) The shares of Common Stock of DeCrane Aircraft Holdings, Inc. offered hereby are being sold by the Company. Prior to this offering, there has been no public market for the Common Stock of the Company. It currently is estimated that the initial public offering price will be between $ .00 and $ .00 per share. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. Application has been made for quotation and trading of the Common Stock on the Nasdaq National Market under the symbol "DAHX." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS (1) COMPANY (2) Per Share........................ $ $ $ Total (3)........................ $ $ $
(1) See "Underwriting" for indemnification arrangements. (2) Before deducting estimated expenses of $ payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to an additional shares of Common Stock at the Price to Public, less Underwriting Discounts and Commissions shown above, solely to cover over-allotments, if any. If this option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock offered hereby are being offered by the several Underwriters named herein, subject to prior sale and acceptance by the Underwriters and subject to their right to reject any order in whole or in part. It is expected that the Common Stock will be available for delivery on or about , 1997 at the offices of Schroder Wertheim & Co. Incorporated, New York, New York. SCHRODER WERTHEIM & CO. DEAN WITTER REYNOLDS INC. , 1997 [PHOTOGRAPH OF SILHOUETTE OF AN AIRPLANE FLYING] [PHOTOGRAPH OF AN AIRPLANE FLIGHT DECK] [COMPANY LOGO] The Company is a manufacturer of products and a provider of services for certain niche markets of the commercial aircraft industry. The Company's products and services typically are utilized to provide an interface between an aircraft and its avionics systems, such as those pictured above. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 [PHOTOGRAPH OF CONTACTS] [PHOTOGRAPH OF CONNECTORS] [PHOTOGRAPH OF BINS OF CONTACTS] The variety of contacts manufactured by the The Company manufactures specialty connectors Company conduct electronic signals or which are used within an aircraft to provide electricity within an aircraft and must be an electronic or electrical link between precision machined to conform to strict discreet wires or devices. Many of the design tolerances. The Company manufactures connectors manufactured by the Company millions of contacts each month. utilize the Company's contacts. [PHOTOGRAPH OF HARNESS ASSEMBLIES] [PHOTOGRAPH OF INSTALLATION KITS] The Company manufactures harness assemblies The Company manufactures avionics support for use with aircraft avionics systems. The structures used to secure avionics systems harness assemblies depicted utilize contacts within an aircraft. The connectors and and connectors manufactured by the Company. harness assemblies manufactured by the Company form the foundation of the installation kits shown above.
[PHOTOGRAPH OF MAN AT A CAD STATION] [PHOTOGRAPH OF WOMAN SITTING IN AIRPLANE SEAT WATCHING A VIDEO MONITOR] The Company employs more than 50 engineers, Many of the Company's systems integration who design, engineer and certify projects involve in-flight entertainment and modifications to existing aircraft as part of passenger telecommunication systems. the Company's systems integration efforts.
[PHOTOGRAPH OF MEN INSTALLING A SYSTEM ONTO AN AIRCRAFT] The Company-employed, FAA-certified mechanics shown above are installing an installation kit for a flight deck avionics system. PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" MEAN DECRANE AIRCRAFT HOLDINGS, INC., A DELAWARE CORPORATION, AND ITS PREDECESSORS AND SUBSIDIARIES. EXCEPT AS OTHERWISE INDICATED, ALL OF THE INFORMATION IN THIS PROSPECTUS WITH REGARD TO SHARES AND PER SHARE AMOUNTS PERTAINING TO THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), HAS BEEN ADJUSTED TO GIVE EFFECT TO A REVERSE STOCK SPLIT WHICH IS PART OF THE RECAPITALIZATION OF THE COMPANY (THE "RECAPITALIZATION") DESCRIBED UNDER "DESCRIPTION OF CAPITAL STOCK--THE RECAPITALIZATION." UNLESS OTHERWISE INDICATED, THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS HAVE NOT EXERCISED THEIR OVER-ALLOTMENT OPTION. THE COMPANY The Company is a manufacturer of avionics components and a provider of avionics systems integration services in certain niche markets of the commercial aircraft industry. The products and services offered by the Company are utilized primarily in commercial aircraft to connect, support and/or integrate various avionics systems, including cabin management, in-flight entertainment and passenger telecommunications systems ("cabin avionics systems") and navigation and safety systems ("flight deck avionics systems"). The Company's targeted markets consist of commercial aircraft and avionics original equipment manufacturers ("OEMs"), the commercial aircraft retrofit market and the commercial aircraft aftermarket. The Company also sells products and services to the military aircraft market. The Company seeks to maximize its sales by emphasizing the complementary nature of its products and services. Components manufactured by the Company include: (i) contacts (of which the Company believes it is the largest supplier to the commercial aircraft industry); (ii) connectors (which often utilize the contacts manufactured by the Company); (iii) harness assemblies (which often utilize the connectors manufactured by the Company); and (iv) avionics support structures (which often are packaged with the Company's connectors and harness assemblies in installation kits). In addition, the Company manufactures dichroic liquid crystal display ("LCD") devices, which are used with flight deck avionics, and believes it is the largest supplier of such devices to the commercial aircraft industry. The systems integration services provided by the Company include design and engineering, Federal Aviation Administration ("FAA") certification, manufacture of installation kits and systems installation. The Company manufactures many of the components required to complete a systems integration project, which it believes provides it a critical competitive advantage. The Company believes that every commercial aircraft currently produced by the Boeing Company ("Boeing"), Airbus Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas") contains components manufactured by the Company. In addition, the Company has entered into supply agreements with Boeing, pursuant to which the Company believes that it is the supplier of a substantial majority of the contacts for all aircraft currently manufactured by Boeing and is the sole-source supplier of certain connectors for in-flight entertainment systems installed by Boeing on its 777 aircraft. As a result, the Company expects to benefit from the continuing recovery of the commercial aircraft industry. According to the 1996 CURRENT MARKET OUTLOOK (the "Boeing Report") published by the Boeing Commercial Airplane Group, expenditures for new aircraft production are expected to total approximately $230 billion for the period 1996 through 2000. This compares to expenditures for new aircraft of approximately $170 billion for the period 1991 through 1995. The Boeing Report also estimates that for the period 1996 through 2000, revenue passenger miles will increase from 1.6 trillion to 2.1 trillion and the worldwide fleet of aircraft will increase from 11,000 to 13,500 (net of approximately 1,000 retirements). The Company believes that the increase in new aircraft production is being driven by numerous factors, including: (i) a general increase in demand for air travel; (ii) an increase in the capacity utilization (load factor) of aircraft currently in service; (iii) an increase in the average age of the worldwide aircraft 3 fleet; (iv) the cost-effectiveness of using new aircraft versus old aircraft; and (v) a general improvement in the financial condition of the airline industry. The Company believes that its position as a primary supplier of products and services to manufacturers of cabin avionics systems and flight deck avionics systems provides the Company with opportunities for growth independent of the aircraft OEM market upturn because such systems typically are installed on a retrofit basis by purchasers of aircraft and not by aircraft OEMs. The Company's customers in these markets include AT&T Wireless Services, Inc. ("AT&T") for passenger telecommunications systems, Interactive Flight Technologies, Inc. ("IFT") for in-flight casino-style gaming and video-on-demand systems, Matsushita Avionics Systems ("Matsushita") for in-flight entertainment systems and the Rockwell Collins Division ("Rockwell Collins") of Rockwell International Corp. for flight deck avionics systems. The Company believes that demand for cabin avionics systems and flight deck avionics systems is increasing, primarily as a result of: (i) a desire by airlines for additional revenue-producing services; (ii) longer flights combined with a demand by airline passengers for more sophisticated forms of in-flight services; and (iii) the advent of new technologies and FAA mandates related to aircraft safety and navigation. The Company's principal strategy is to establish and expand leading positions in high-margin, niche markets within the commercial aircraft industry, with a focus on the manufacture of avionics components and the integration of avionics systems. Historically, the Company has demonstrated an ability to increase revenues during times of industry decline which it attributes to several actions, including: (i) the establishment of a balanced offering of products and services for the OEM market, the retrofit market and the aftermarket; (ii) the initiation of private labeling programs pursuant to which the Company manufactures contacts for other connector manufacturers, including certain of the Company's competitors; (iii) the development of new products such as specialty connectors for Boeing's 777 aircraft; and (iv) the diversification into new services such as the integration of in-flight entertainment systems. In the future, the Company will seek to grow by: (i) capitalizing on growth in commercial aircraft production; (ii) exploiting increased demand for cabin avionics systems; (iii) expanding and diversifying the Company's systems integration services; (iv) completing additional strategic acquisitions; and (v) capitalizing on the Company's complementary products and services. RECENT ACQUISITION ACTIVITY The Company was formed in 1989 to capitalize on emerging trends in the aircraft market through acquisitions. Since its formation, the Company has completed eight acquisitions of businesses or assets, three of which were completed in 1996. - In December 1996, the Company expanded its contact manufacturing capability and capacity by purchasing certain manufacturing assets (collectively, the "AMP Facility") from AMP, Inc. ("AMP"). The AMP Facility enables the Company to produce contact blanks (unfinished contacts) using a cold-heading manufacturing process which, when used for high volume production, is more cost-effective than the Company's existing screw machine operations. Therefore, the Company is seeking to optimize its contact production by converting a portion of its existing high volume manufacturing runs to the cold-heading process. The plating and finishing of contact blanks produced at the AMP Facility will be conducted at the existing facilities of the Company. - In December 1996, the Company acquired Elsinore Aerospace Services, Inc. and the Elsinore Engineering Services division (collectively, "Elsinore") of Elsinore, L.P. The acquisition of Elsinore provided the Company with the ability to issue certain FAA design approvals for modification to designated aircraft through Elsinore's FAA-issued Designated Alteration Station ("DAS") approval. As a systems integrator, the Company regularly seeks such FAA approvals on behalf of its customers when it integrates a system onto an aircraft. The ability to issue FAA approvals through Elsinore eliminates the need, in most instances, for the Company to apply to the FAA for 4 such approvals, thereby expediting the approval process. In addition, the acquisition of Elsinore increased by approximately 50% the number of the Company's engineering professionals dedicated to systems integration functions. - In September 1996, the Company acquired the Aerospace Display Systems division ("ADS") of Allard Industries, Inc. ADS is a manufacturer of dichroic LCD devices for use with flight deck avionics systems and it believes that is the largest supplier of such devices to the commercial aircraft industry. The acquisition of ADS expanded the Company's offering of components used in flight deck avionics systems and strengthened its position as a leading supplier of niche avionics components. In addition, in February 1996, the Company acquired the remaining 25% interest in Cory Components, Inc. ("Cory Components") which it did not already own (the "Minority Interest Acquisition"). The Company believes that the fragmented nature of the market for aircraft components and systems integration services will provide it with additional opportunities to exploit industry consolidation trends. * * * * The Company's corporate offices are located at 155 Montrose West Avenue, Suite 210, Copley, OH 44321. The Company's telephone number is (330) 668-3061. All inquiries or notices should be directed to the attention of R. Jack DeCrane, Chairman of the Board and Chief Executive Officer of the Company. THE OFFERING Common Stock offered................... shares Common Stock to be outstanding after the Offering......................... shares (1) Use of Proceeds........................ To repay certain indebtedness. See "Use of Proceeds." Nasdaq National Market symbol.......... DAHX
- ------------------------ (1) Includes 152,915 shares of Common Stock issuable upon exercise of warrants to purchase Common Stock (the "Nassau Warrants") held by Nassau Capital Partners L.P. and NAS Partners I L.L.C. (collectively, "Nassau") which will remain outstanding after the Recapitalization. Does not include 172,155 shares of Common Stock reserved for issuance pursuant to the Company's Amended and Restated 1993 Share Incentive Plan (the "Share Incentive Plan"). 5 SUMMARY CONSOLIDATED FINANCIAL DATA
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------- --------------------- 1993 1994 1995 1995 1996(1) --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues.......................................... $ 48,197 $ 47,092 $ 55,839 $ 42,274 $ 43,059 Gross profit...................................... 11,939 10,685 12,376 9,896 9,782 Operating income.................................. 2,776 1,760 1,835 2,230 2,172 Income (loss) before cumulative effect of accounting change and extraordinary item........ (636) (2,429) (3,446) (1,572) (1,097) Net loss.......................................... (757) (2,693) (3,446) (1,572) (1,097) Net loss applicable to common stockholders........ (865) (3,080) (4,003) (1,989) (1,941) Income (loss) per common share: Pro forma for the Recapitalization.............. $ (1.47) $ (.71) Pro forma as adjusted (3)....................... Weighted average number of common shares outstanding: Pro forma for the Recapitalization.............. 2,728 2,728 Pro forma as adjusted (4)....................... OTHER FINANCIAL DATA: EBITDA (5)........................................ $ 6,195 $ 4,608 $ 5,174 $ 4,764 $ 4,479 Bookings (6)...................................... 46,830 47,896 50,785 37,406 53,863 Backlog at end of period (7)...................... 23,933 24,493 19,761 19,821 38,300 PRO FORMA AS ADJUSTED(2) ------------------------------- NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1995 1996 -------------- -------------- STATEMENT OF OPERATIONS DATA: Revenues.......................................... $ 65,791 $ 50,765 Gross profit...................................... 15,290 12,349 Operating income.................................. 2,972 3,292 Income (loss) before cumulative effect of accounting change and extraordinary item........ 1,752 2,615 Net loss.......................................... Net loss applicable to common stockholders........ Income (loss) per common share: Pro forma for the Recapitalization.............. Pro forma as adjusted (3)....................... $ $ Weighted average number of common shares outstanding: Pro forma for the Recapitalization.............. Pro forma as adjusted (4)....................... OTHER FINANCIAL DATA: EBITDA (5)........................................ Bookings (6)...................................... Backlog at end of period (7)......................
SEPTEMBER 30, 1996 ------------------------- PRO FORMA AS ACTUAL ADJUSTED(8) ----------- ----------- BALANCE SHEET DATA: Working capital......................... $ 11,191 $ 16,620 Total assets............................ 54,228 52,553 Total debt.............................. 33,546 4,079 Mandatorily redeemable common stock warrants.............................. 2,054 566 Stockholders' equity.................... 5,736 35,267
- ------------------------------ (1) Includes the effect of the Minority Interest Acquisition beginning February 20, 1996, the date on which the transaction occurred, and the results of ADS beginning September 18, 1996, the date on which it was acquired. (2) Pro forma for the Minority Interest Acquisition and the acquisition of ADS as if they had occurred on January 1, 1995. Adjusted to reflect the sale by the Company of shares of Common Stock in this offering (the "Offering") and the application of the net proceeds therefrom as set forth under "Use of Proceeds." Excludes an extraordinary charge of $3.0 million to be incurred as a result of the repayment of debt with the net proceeds from the Offering. (3) Reflects the Recapitalization as well as the acquisitions and the Offering, as described in Note (2) above. Does not include 525,000 shares of Common Stock reserved for issuance pursuant to the Share Incentive Plan. (4) Pro forma for the Recapitalization and adjusted for the shares of Common Stock offered hereby. Does not include 525,000 shares of Common Stock reserved for issuance pursuant to the Share Incentive Plan. (5) EBITDA represents earnings before interest expense (including amortization of debt discounts), income taxes, depreciation, amortization (including non-compete covenants, goodwill, and other intangibles) and minority interest. EBITDA is presented because it may be used as one indicator of a company's cash flow. The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as a substitute for net income (loss) as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity, in each case determined in accordance with generally accepted accounting principles. The Company further believes that EBITDA is a meaningful measure of performance that is commonly used in the aerospace industry to analyze comparable companies on the basis of operating performance, leverage and liquidity. (6) Bookings represent the total invoice value of purchase orders received during the period. (7) Orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of the Company's receipt of orders and the speed with which those orders are filled. (8) Reflects: (i) the Recapitalization; and (ii) the sale by the Company of shares of Common Stock in the Offering and the application of the net proceeds therefrom as set forth under "Use of Proceeds." 6 RISK FACTORS POTENTIAL PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE DECIDING TO PURCHASE SHARES OF COMMON STOCK OFFERED HEREBY. COMMERCIAL AIRCRAFT INDUSTRY RISKS Among the Company's principal customers are the world's commercial aircraft and avionics OEMs. The principal market for such OEMs is the commercial airline industry, which is cyclical and has been adversely affected by a number of factors, including, but not limited to, increased fuel and labor costs and intense price competition. The commercial airline industry may be adversely affected by increased regulatory scrutiny in the wake of several major airline disasters and threats of terrorism. Several domestic and foreign commercial airlines have encountered significant financial difficulties, resulting in certain of such airlines ceasing to conduct business or seeking protection from creditors. These financial difficulties, as well as certain other factors, caused new commercial aircraft deliveries to decline from a peak of approximately 770 aircraft in 1991 to approximately 370 aircraft in 1995 according to AEROSPACE AND AIRTRANSPORT CURRENT ANALYSIS published by Standard and Poor's Industry Surveys (the "S&P Report"). Another industry downturn could adversely affect the Company's business. See "Business--Industry Overview and Trends." SUBSTANTIAL LEVERAGE; HISTORY OF NET LOSSES AND DEFAULTS The Company has operated with substantial leverage and debt service requirements since its first acquisition in 1990. As a result, since 1990, the Company has experienced net losses in each year through 1995, despite positive operating income. In addition, the Company was not in compliance with certain financial covenants contained in its debt agreements at various times since its inception. In each case such non-compliance was waived by the lenders. Since March 1996, the Company has been in compliance with all financial covenants contained in its existing debt agreements. Although the Company intends to use the net proceeds of this Offering to repay a significant portion of its outstanding indebtedness, there can be no assurance as to the future profitability of the Company nor can there be assurance that the Company will remain in compliance with the covenants contained in its debt agreements. See "Use of Proceeds," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements." FLUCTUATIONS IN QUARTERLY AND YEARLY RESULTS The Company's business is subject to quarterly and yearly fluctuations. Specifically, the magnitude of certain systems integration programs relative to the Company's overall business has the potential to expose the Company's results of operations to fluctuations in quarterly and yearly results. In addition, irregular timing of awards or cancellations of systems integration contracts, as well as development and technology delays by OEMs or their suppliers, could further exacerbate such fluctuations in quarterly and yearly operations. If such events occur, the results of operations of the Company may be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON KEY CUSTOMERS The Company's three largest customers are Boeing, AT&T and Matsushita, which accounted for approximately 9.0%, 21.6% and 7.4%, respectively, of the Company's consolidated revenues (pro forma for the acquisition of ADS) for the fiscal year ended December 31, 1995 and 12.8%, 8.9% and 8.5%, respectively, of the Company's consolidated revenues (pro forma for the acquisition of ADS) for the nine 7 months ended September 30, 1996. In addition, a significant portion of the Company's sales of components are sold to Boeing indirectly through sales to suppliers of Boeing. Most of the Company's sales to Boeing are pursuant to contracts which may be terminated by Boeing at any time. In addition, under certain circumstances, Boeing may enforce alternative economic terms pursuant to such contracts in which case the contracts could become less commercially favorable to the Company or the Company may elect to terminate the applicable portion of such contracts. There can be no assurance that Boeing will not terminate any of its contracts with the Company. The Company expects that IFT, a new entrant into the in-flight entertainment business and a publicly traded company, will be a significant customer in 1997. The Company entered into a contract with IFT in July 1996 and expects to realize a substantial portion of the revenues from such contract in 1997. The Company will account for revenues generated under the IFT contract using the percentage of completion method of accounting. Pursuant to this contract, which provides for monthly progress payments, the Company will provide systems integration services for IFT's new in-flight entertainment system (the "IFT System") on 21 wide-body aircraft for Swiss Air Transport Co. Ltd. ("Swissair"). The Swissair contract is the first large-scale commercial application of the IFT System. Any delays in installation or problems in implementation of the IFT System may result in the deferral or loss of potential revenues from IFT. The loss of any one or more of the Company's key customers could have a material adverse effect on the Company. See "Business--Customers" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." REGULATION The FAA prescribes standards and licensing requirements for aircraft components, licenses private repair stations and issues DAS approvals giving the holder the right to certify aircraft modifications on behalf of the FAA. The ability of the Company to arrange for rapid government certification of its systems integration services is essential to the Company's business and depends on its continuing access to or use of private repair stations, DASs, and FAA-designated and FAA-certified engineering professionals. There can be no assurance that: (i) the Company will continue to have adequate access to such stations and professionals; or (ii) the current public and congressional scrutiny of the FAA's inspection philosophy and mechanisms will not result in the restriction or elimination of the use of such private repair stations or DASs, either of which could have a material adverse effect on the Company. In addition, although the Company believes that it possesses all required domestic and foreign governmental licenses and certificates, including without limitation Parts Manufacturer Approvals ("PMAs") and Supplemental Type Certificates ("STCs"), any delay in obtaining or failure to obtain a required license or certificate, or the revocation or limitation of such licenses or certificates, could have a material adverse effect on the Company's operations. See "Business--Industry Regulation and Approvals." RISKS ASSOCIATED WITH ACQUISITIONS The Company's ability to grow by acquisition is dependent upon, and may be limited by, the availability of suitable acquisition candidates and capital, and by restrictions contained in the Company's debt agreements. In addition, growth by acquisition involves risks that could adversely affect the Company's results of operations, including difficulties in integrating the operations and personnel of acquired companies, the amortization of acquired intangible assets and the potential loss of key employees of acquired companies. There can be no assurance that the Company will be able to identify suitable acquisition candidates, obtain the capital necessary to pursue its acquisition strategy, consummate acquisitions on satisfactory terms or, if any acquisitions are consummated, satisfactorily integrate such acquired businesses into the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--General" and "Business--Growth Strategy." 8 COMPETITION The Company operates in a highly competitive industry and competes against a number of companies, some of which have significantly greater financial, technological and marketing resources than the Company. The Company believes that its ability to compete depends on high product performance, short lead-time and timely delivery, competitive price, and superior customer service and support. There can be no assurance that the Company will be able to compete successfully with respect to these or other factors. See "Business--Competition." GOLD AND COPPER A significant portion of the cost of the materials used in the contacts manufactured by the Company is comprised of the cost of gold, and to a lesser extent, the cost of copper. Accordingly, a significant increase in the price of gold or copper could have a material adverse effect on the Company's results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." FOREIGN CURRENCY The Company has a manufacturing facility in Switzerland and incurs in Swiss Francs a significant percentage of the cost of the contacts it manufactures in Switzerland. Therefore the Company's financial results are subject to fluctuations of the Swiss Franc in relation to the U.S. Dollar. In 1996, solely in an effort to mitigate the effects of currency fluctuations, the Company began to enter into forward exchange contracts to purchase Swiss Francs and it expects to engage in such hedging transactions in the future. However, there can be no assurance that such transactions will prevent currency fluctuations from adversely affecting the Company's results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements." SUPPLY OF QUALIFIED ENGINEERING PERSONNEL The Company's ability to attract and retain a high-quality engineering staff is important to its business. Competition for qualified avionics engineers is intense. There can be no assurance that the Company will be able to retain its existing engineering staff or fill new positions or vacancies created by expansion or turnover. See "Business--Products and Services" and "Business--Employees." CONTROL OF COMPANY BY PRINCIPAL STOCKHOLDERS Following the completion of the Offering and giving effect to the Recapitalization, (i) Nassau, (ii) DSV Partners, IV ("DSV"), (iii) Electra Investment Trust P.L.C. and Electra Associates, Inc. (collectively, "Electra") and (iv) Brantley Venture Partners, II, L.P. ("Brantley") will beneficially own %, %, %, and %, respectively, of the issued and outstanding Common Stock. Nassau's ownership percentage includes shares of Common Stock which may be acquired upon exercise of the Nassau Warrants, which warrants give Nassau the right to vote with respect to matters presented to holders of Common Stock. See "Description of Capital Stock--Warrants." By virtue of their stockholdings, such beneficial owners will be able to exercise significant control over the Company's business, policies and affairs and, together, could cause the Company to take actions that may be adverse to the Company's other stockholders. See "Principal Stockholders." Also, Nassau, DSV, Brantley and the Company are parties to a shareholders agreement which requires the Company for so long as the applicable stockholder owns at least 5% of the Common Stock (including shares which may be acquired upon exercise of warrants) to include on the Company's slate of nominees for director a person designated by the applicable stockholder. See "Certain Transactions--Shareholders Agreement." 9 EXCESS LOSS RISKS The Company currently has in force aviation products insurance. To date, the Company has not experienced any significant uninsured or insured aviation-related claims or any material product liability claims. However, there can be no assurance that the Company's existing insurance coverage will be adequate to cover future claims that may arise or that such coverage can be renewed at commercially reasonable rates. ENVIRONMENTAL REGULATION The Company's business operations and facilities are subject to a number of federal, state, local and foreign environmental laws and regulations. Although the Company believes that its operations and facilities are in material compliance with all federal, state, local and foreign environmental laws and regulations, there can be no assurance that the Company will not incur significant costs in the future due to current or former operations and waste disposal practices or changing environmental compliance requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Environmental Matters," "Business--Environmental Matters," and "Business--Legal Proceedings." DISRUPTIONS AT THE COMPANY'S FACILITIES A significant portion of the Company's manufacturing and administrative operations are currently located in the greater Los Angeles, California area, an area that may be subject to earthquakes or other natural disasters. Although the Company maintains standard property and business interruption insurance, as well as earthquake insurance on its primary manufacturing facility, an earthquake or other natural disaster could have a material adverse effect on its business and operating results. See "Business--Facilities." REPURCHASE OF WARRANTS The Company has issued the Nassau Warrants pursuant to which the holders thereof may purchase up to 152,915 shares of Common Stock for $.035 per share. Under certain circumstances the Nassau Warrants may be terminated prior to December 31, 2000. However, commencing December 31, 2000, if such warrants remain outstanding the holders of the Nassau Warrants may require the Company to repurchase the Nassau Warrants at prices specified in the warrant agreements relating to the Nassau Warrants. If the Company were to be required to repurchase the Nassau Warrants, the Company is unable to predict the effect of such a repurchase on its liquidity. Also, there can be no assurance that the debt instruments of the Company existing at the time the Nassau Warrants are required to be repurchased will permit the Company to repurchase the Nassau Warrants. See "Description of Capital Stock--Warrants." ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock and there can be no assurance that an active public market will develop or, if developed, will be sustained after the completion of the Offering. The initial public offering price of the Common Stock offered hereby will be determined through negotiations between the Company and the representatives of the Underwriters and may not be indicative of future market prices. See "Underwriting" for information relating to the factors considered in determining the initial public offering price of the Common Stock. Factors such as announcements concerning the Company or its competitors, investor perception of the Company, fluctuations in the Company's operating results and general market conditions may cause the market price of the Common Stock to fluctuate significantly. 10 SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of a substantial number of shares of Common Stock in the public market after the Offering, or the expectation that such sales could occur, could adversely affect the market price of the Common Stock and the Company's ability to raise capital through a subsequent offering of securities. Of the shares of Common Stock to be outstanding after the Offering and the Recapitalization, shares will be available for resale in the public market without restriction immediately following the Offering if held by holders who are not "affiliates" of the Company (as defined in the Securities Act of 1933, as amended (the "Securities Act")). All of the remaining shares are "restricted securities" within the meaning of Rule 144 adopted under the Securities Act. These restricted securities were issued and sold by the Company in private transactions in reliance upon exemptions from registration under the Securities Act. After expiration of the 180-day lock-up period following the Offering, pursuant to agreements with the Underwriters, (i) all restricted securities will be available for resale pursuant to the limitations of Rule 144 and (ii) the Company, pursuant to its certificate of incorporation (the "Certificate"), may authorize the issuance of additional shares of Common Stock and shares of one or more series of voting preferred stock. The issuance of additional shares of capital stock could result in the dilution of the voting power of the shares of Common Stock purchased in the Offering. In addition, following the expiration of the 180-day lock-up period, certain stockholders have the right, pursuant to the terms and conditions of a registration rights agreement (the "Registration Rights Agreement"), to require the Company to (i) effect up to four registrations under the Securities Act covering all or any portion of the shares of Common Stock held by such stockholders, provided that if the Company effects a registration at the request of a stockholder, no further demand may be made for a period of at least nine months and (ii) include all or any portion of such stockholders' shares of Common Stock in any proposed registration by the Company of shares of Common Stock (subject to reduction to the extent that the managing underwriter, if any, is of the opinion that such inclusion would adversely affect the marketing of the securities to be sold therein). See "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriting." ANTI-TAKEOVER PROVISIONS Certain provisions of the Certificate and the Company's bylaws (the "Bylaws") and of Delaware Law could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. See "Description of Capital Stock--Certain Certificate and Bylaw Provisions and Delaware General Corporation Law Section 203." DILUTION Purchasers in the Offering will incur an immediate and substantial dilution in the net tangible book value of their Common Stock. See "Dilution." 11 RECENT DEVELOPMENTS PURCHASE OF AMP FACILITY On December 12, 1996, the Company expanded its contact manufacturing capability and capacity by purchasing the AMP Facility. The AMP Facility enables the Company to produce contact blanks using a cold-heading manufacturing process which, when used for high volume production, is more cost-effective than the Company's existing screw machine operations. Therefore, the Company is seeking to optimize its contact production by converting a portion of its existing high volume manufacturing runs to the cold-heading process. The plating and finishing of contact blanks produced at the AMP Facility will be conducted at the existing facilities of the Company. The purchase price of the AMP Facility (including related fees and expenses and post-closing adjustments) was $7.0 million, $5.4 million of which was paid at the closing. The balance of the purchase price is payable in early 1997. The Company financed the cash portion of the purchase price through the issuance of $5.0 million principal amount of the Senior Term Notes (as defined in "Use of Proceeds") and a $.4 million drawdown under the Senior Revolver (as defined in "Use of Proceeds"). The Company has entered into agreements to supply AMP with a portion of its contact requirements for up to two years. In addition, as a result of the purchase of the AMP Facility, the Company will have the opportunity to make increased sales to certain distributors that formerly purchased contacts from other entities within AMP. The AMP Facility was not purchased as a separate, stand-alone business and no meaningful historical financial data is available. ACQUISITION OF ELSINORE On December 5, 1996, the Company expanded its systems integration capabilities with the acquisition of Elsinore. Elsinore provides the Company with the ability to issue certain FAA design approvals for modifications to designated aircraft, which the Company believes is a key competitive advantage for winning systems integration contracts. By acquiring Elsinore, the Company is seeking to capitalize on increased outsourcing trends by aircraft OEMs, avionics OEMs and airlines. By integrating the employees of Elsinore into its existing operations, the Company increased by approximately 50% the number of the Company's engineering professionals dedicated to its systems integration functions. The acquisition of Elsinore also provided the Company with an important new customer in the aircraft industry, Daimler Benz Aerospace Airbus GmbH ("Daimler Benz Aerospace"), and the opportunity to obtain additional new customers. The purchase price of Elsinore (including related fees and expenses) was $2.6 million, which the Company financed through (i) a drawdown under the Senior Revolver of $1.3 million and (ii) the issuance to the seller of a note (the "Seller Note") in a maximum principal amount of $1.3 million and bearing interest at a rate of 15% per annum. The Seller Note will become due February 15, 1997 and is subject to reduction based on certain working capital adjustments. In 1995, Elsinore generated revenues of approximately $3.7 million. ACQUISITION OF ADS On September 18, 1996, the Company expanded its presence in flight deck avionics components with the acquisition of ADS, a manufacturer of dichroic LCD devices for use with flight deck avionics systems. The acquisition of ADS, which the Company believes is the largest supplier of dichroic LCD devices in the commercial aircraft industry, is consistent with the Company's strategy to achieve growth in operations and market share through strategic acquisitions. The Company believes that the acquisition of ADS will allow it to capitalize on the upturn in aircraft OEM production by increasing its revenue content per aircraft as well as by enhancing the Company's position with its major customers. The purchase price of ADS (including related fees and expenses and post-closing adjustments) was $13.3 million, including $2.0 million which the Company is obligated to pay over the next three years. The Company financed the cash portion of the purchase price through: (i) the issuance of $3.0 million of Series E Preferred Stock and warrants to purchase 49,079 shares of Common Stock; (ii) the issuance of $3.0 million of 12 Convertible Notes (as defined in "Use of Proceeds"), together with warrants to purchase 49,079 shares of Common Stock; and (iii) an increase in and subsequent drawdown under the Company's Senior Revolver of $5.4 million. In 1995, ADS generated revenues of $10.0 million. IFT CONTRACT On July 30, 1996, the Company entered into an agreement with IFT to integrate the IFT System into 21 wide-body Swissair aircraft. The Swissair project represents the first broad-based installation of an interactive in-flight casino-style gaming and video-on-demand system in a commercial aircraft fleet. The Company expects to realize a substantial portion of the revenues from such contract in 1997. The Company will account for revenues generated under the IFT contract using the percentage of completion method of accounting. 13 USE OF PROCEEDS The net proceeds to be received by the Company from the Offering are estimated to be $31.5 million, assuming an initial public offering price of $ per share and after deducting underwriting discounts and commissions and estimated expenses of the Offering. The Company estimates that it will use the net proceeds from the Offering, together with approximately $9.2 million of the proceeds from a new credit facility (the "New Credit Facility") which the Company is in negotiations to obtain (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"), to repay amounts due under the Company's revolving line of credit (the "Senior Revolver"), the Company's senior term notes (the "Senior Term Notes"), the Company's 15% Convertible Notes due 1997 (the "Convertible Notes") and the Company's 12% Senior Subordinated Notes due 2001 (the "Senior Subordinated Notes"), as described below. The Company will use approximately $13.7 million to repay in full amounts due under the Senior Revolver, of which $9.1 million was outstanding as of September 30, 1996. Of the amounts outstanding under the Senior Revolver, $8.0 million bears interest at the Eurodollar Rate plus 4.5% per annum (10.0% as of September 30, 1996), with the remainder bearing interest at the lender's prime rate plus 3.25% per annum (11.5% as of September 30, 1996). Amounts outstanding under the Senior Revolver become due on September 18, 1999. In September 1996, the Company borrowed $5.4 million under the Senior Revolver to fund a portion of the ADS purchase price. In December 1996, the Company borrowed $1.3 million and $.4 million under the Senior Revolver to fund a portion of the purchase prices of Elsinore and the AMP Facility, respectively. The Company will use approximately $17.0 million to repay in full amounts outstanding under the Senior Term Notes. Of the amounts outstanding under the Senior Term Notes, $12.0 million bears interest at the Eurodollar Rate plus 5.0% (10.5% as of September 30, 1996) and $5.0 million bears interest at a rate equal to 3.5% above the greater of (i) the lender's prime rate or (ii) the federal funds rate plus 1.5% (11.8% as of December 31, 1996). The Senior Term Notes mature on September 30, 2001 and require quarterly payments of principal in varying amounts. The Company issued $5.0 million of Senior Term Notes in December 1996 to fund a portion of the purchase price of the AMP Facility. The Company will use $3.0 million to repay in full amounts outstanding under the Convertible Notes. The Convertible Notes bear interest at a rate of 15.0% per annum, which is payable quarterly. The Company has certain rights to defer cash interest payments. The Convertible Notes mature on the earlier of June 30, 1997 or the consummation of the Offering. The Company issued the Convertible Notes in September 1996 to fund a portion of the purchase price of ADS. The Company will use $7.0 million to repay in full the Senior Subordinated Notes. The Senior Subordinated Notes bear interest at a rate of 12.0% per annum and mature on December 31, 2001. Pending the use of the net proceeds for the purposes described above, the Company will invest such net proceeds in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY The Company has never paid cash dividends on the Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future earnings to finance operations and the expansion of its business. Any future determination to pay cash dividends will be made at the discretion of the Company's board of directors (the "Board") and will be dependent upon the Company's financial condition, operating results, capital requirements and such other factors as the Board deems relevant. Further, the Company's debt agreements prohibit payment of dividends, and the Company expects that any future debt agreements also will include such prohibitions. 14 CAPITALIZATION The following table sets forth as of September 30, 1996: (i) the consolidated capitalization of the Company; and (ii) the pro forma consolidated capitalization of the Company giving effect to the Recapitalization and the sale of shares of Common Stock offered hereby and the application of the net proceeds therefrom as described in "Use of Proceeds" (assuming an initial public offering price of $ . per share), as if these transactions had occurred on September 30, 1996. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1996 -------------------------- PRO FORMA AS ACTUAL ADJUSTED (2) --------- --------------- (IN THOUSANDS) Short-term debt: Short-term borrowings.............................................................. $ 530 $ 530 Current portion of long-term debt Senior Term Notes................................................................ 1,745 -- Other (1)........................................................................ 1,146 1,146 Convertible Notes.................................................................. 2,882 -- --------- --------------- Total short-term debt............................................................ $ 6,303 $ 1,676 --------- --------------- --------- --------------- Long-term debt: Senior Revolver.................................................................... $ 9,143 $ -- Senior Term Notes.................................................................. 10,377 -- New Credit Facility (3)............................................................ -- 659 Senior Subordinated Notes.......................................................... 5,979 -- Other (1).......................................................................... 1,744 1,744 --------- --------------- Total long-term debt............................................................. 27,243 2,403 --------- --------------- Mandatorily redeemable common stock warrants......................................... 2,054 566 --------- --------------- Stockholders' equity: Cumulative convertible preferred stock............................................. 13,850 -- Common stock, no par value, 4,253,550 shares authorized; 85,593 shares issued and outstanding............................................. 62 -- Common Stock, $.01 par value, shares authorized; shares issued and outstanding (4).................................................................. -- Additional paid-in capital......................................................... -- Accumulated deficit (5)............................................................ (8,406) (11,434) Foreign currency translation adjustment............................................ 230 230 --------- --------------- Total stockholders' equity....................................................... 5,736 --------- --------------- Total capitalization (6)............................................................. $ 35,033 $ --------- --------------- --------- ---------------
- ------------------------------ (1) Includes capital lease obligations, equipment financing facility and acquisition financing payable to the sellers in conjunction with the Minority Interest Acquisition and the acquisition of ADS. (2) Does not reflect borrowings of $9.6 million used to fund the acquisition of Elsinore and the purchase of the AMP Facility, which occurred subsequent to September 30, 1996. See "Recent Developments." (3) Reflects New Credit Facility borrowings which, together with the net proceeds from the Offering, will be used to repay the debt outstanding as presented in the table above as of September 30, 1996. See "Use of Proceeds." (4) Includes shares of Common Stock offered hereby. Does not include 525,000 shares of Common Stock reserved for issuance pursuant to the Share Incentive Plan. (5) Pro forma as adjusted reflects an extraordinary charge of $3.0 million to be incurred as a result of the debt repayment from the net proceeds from the Offering. The extraordinary charge is comprised of: (i) $1.6 million for unamortized deferred financing costs; (ii) $1.0 million for unamortized original issue discounts; and (iii) $.4 million for a prepayment penalty. (6) Total capitalization consists of long-term debt, mandatorily redeemable common stock warrants and stockholders' equity. 15 DILUTION As of September 30, 1996, giving effect to the Recapitalization, the Company's net tangible book value (deficit) was ($8.5 million), or ($3.45) per share of Common Stock. Net tangible book value per share represents the amount of the Company's total tangible assets reduced by the amount of its total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of shares of Common Stock in the Offering and the application of the net proceeds therefrom as described in "Use of Proceeds," the Company's net tangible book value as of September 30, 1996 would have been $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing shareholders and an immediate dilution of $ per share to purchasers of shares of Common Stock in the Offering. The following table illustrates this per share dilution: Assumed initial public offering price per share............... $ Net tangible book value per share before the Offering (1)... $ Increase per share attributable to new investors............ --------- Net tangible book value per share after the Offering.......... --------- Dilution per share to new investors........................... $ --------- ---------
- ------------------------------ (1) Includes 152,915 shares of Common Stock issuable upon exercise of the Nassau Warrants. Does not include 525,000 shares of Common Stock reserved for issuance pursuant to the Share Incentive Plan. The following table sets forth the total consideration and the average price per share to be paid by the purchasers of the Common Stock offered hereby and the total consideration paid and average price per share paid by existing stockholders (based on an assumed initial public offering price of $ per share).
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------------ --------------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ----------- -------------- ----------- ----------- Existing stockholders.................. 2,460,967 % $ 14,946,000 % $ 6.07 New investors.......................... % % ----------- ----- -------------- ----- Total................................ 100.0% $ 100.0% ----------- ----- -------------- ----- ----------- ----- -------------- -----
16 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated statement of operations and balance sheet data for the Company as of and for the year ended August 31, 1991, the four months ended December 31, 1991, and the years ended December 31, 1992, 1993, 1994 and 1995 have been derived from the Company's audited consolidated financial statements. The selected consolidated financial data as of and for the nine months ended September 30, 1995 and 1996 have been derived from the Company's unaudited consolidated financial statements, which in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the interim information. The results of operations for the interim periods are not necessarily indicative of results of operations for the full year. All of the information should be read in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
FOUR MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, AUG 31, DEC 31, ----------------------------------------------------- 1991 1991 (1) 1992 1993 1994 1995 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues................................ $ 7,206 $ 9,760 $ 42,620 $ 48,197 $ 47,092 $ 55,839 Cost of sales........................... 3,973 6,931 32,470 36,258 36,407 43,463 ----------- ----------- ----------- ----------- ----------- ----------- Gross profit............................ 3,233 2,829 10,150 11,939 10,685 12,376 Selling, general and administrative expenses.............................. 1,983 1,997 6,851 7,953 7,716 9,426 Amortization of intangible assets....... 539 338 1,209 1,210 1,209 1,115 ----------- ----------- ----------- ----------- ----------- ----------- Operating income........................ 711 494 2,090 2,776 1,760 1,835 Interest expense........................ 871 621 2,779 2,940 3,244 3,821 Other (income) expense, net............. 122 80 (213) (148) 332 382 ----------- ----------- ----------- ----------- ----------- ----------- Loss before provision for income taxes, cumulative effect of accounting change and extraordinary item................ (282) (207) (476) (16) (1,816) (2,368) Provision for income taxes (3).......... -- (128) (299) (620) (613) (1,078) ----------- ----------- ----------- ----------- ----------- ----------- Loss before cumulative effect of accounting change and extraordinary item.................................. (282) (335) (775) (636) (2,429) (3,446) Cumulative effect of accounting change (4)................................... -- -- -- (121) -- -- Extraordinary loss from debt refinancing (5)................................... -- -- -- -- (264) -- ----------- ----------- ----------- ----------- ----------- ----------- Net loss................................ $ (282) $ (335) $ (775) $ (757) $ (2,693) $ (3,446) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss applicable to common stockholders.......................... $ (282) $ (335) $ (775) $ (865) $ (3,080) $ (4,003) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) per common share: Pro forma for the Recapitalization.... $ (1.47) Pro forma as adjusted (6)............. $ Weighted average number of common shares outstanding: Pro forma for the Recapitalization.... 2,728 Pro forma as adjusted (7)............. OTHER FINANCIAL DATA: EBITDA (8).............................. $ 1,302 $ 1,276 $ 5,124 $ 6,195 $ 4,608 $ 5,174 Bookings (9)............................ N/A N/A 50,325 46,830 47,896 50,785 Backlog at end of period (10)........... N/A 17,595 25,330 23,933 24,493 19,761 NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1995 1996 (2) ----------- ----------- STATEMENT OF OPERATIONS DATA: Revenues................................ $ 42,274 $ 43,059 Cost of sales........................... 32,378 33,277 ----------- ----------- Gross profit............................ 9,896 9,782 Selling, general and administrative expenses.............................. 6,764 7,072 Amortization of intangible assets....... 902 538 ----------- ----------- Operating income........................ 2,230 2,172 Interest expense........................ 2,856 2,821 Other (income) expense, net............. 304 183 ----------- ----------- Loss before provision for income taxes, cumulative effect of accounting change and extraordinary item................ (930) (832) Provision for income taxes (3).......... (642) (265) ----------- ----------- Loss before cumulative effect of accounting change and extraordinary item.................................. (1,572) (1,097) Cumulative effect of accounting change (4)................................... -- -- Extraordinary loss from debt refinancing (5)................................... -- -- ----------- ----------- Net loss................................ $ (1,572) $ (1,097) ----------- ----------- ----------- ----------- Net loss applicable to common stockholders.......................... $ (1,989) $ (1,941) ----------- ----------- ----------- ----------- Income (loss) per common share: Pro forma for the Recapitalization.... $ (.71) Pro forma as adjusted (6)............. $ Weighted average number of common shares outstanding: Pro forma for the Recapitalization.... 2,728 Pro forma as adjusted (7)............. OTHER FINANCIAL DATA: EBITDA (8).............................. $ 4,764 $ 4,479 Bookings (9)............................ 37,406 53,863 Backlog at end of period (10)........... 19,821 38,300
17
DECEMBER 31, AUG 31, DEC 31, ----------------------------------------------------- 1991 1991 1992 1993 1994 1995 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital......................... $ 2,143 $ 782 $ 5,091 $ (637) $ 11,459 $ 12,583 Total assets............................ 10,532 32,548 33,911 34,653 37,685 36,329 Total debt.............................. 7,132 17,459 20,604 19,653 23,874 24,672 Redeemable preferred stock and warrants.............................. 2,168 5,548 5,711 5,818 2,329 1,633 Stockholders' equity (deficit).......... (355) (578) (1,679) (2,618) 766 (1,697) SEPTEMBER 30, ------------------------- 1995 1996 ----------- ----------- BALANCE SHEET DATA: Working capital......................... $ 11,477 $ 11,191 Total assets............................ 37,077 54,228 Total debt.............................. 23,183 33,546 Redeemable preferred stock and warrants.............................. 2,329 2,054 Stockholders' equity (deficit).......... (505) 5,736
- -------------------------- (1) Includes the results of the Tri-Star Companies beginning October 15, 1991, the date on which they were acquired. (2) Includes the effect of the Minority Interest Acquisition beginning February 20, 1996, the date on which the transaction occurred, and the results of ADS beginning September 18, 1996, the date on which it was acquired. (3) Prior to the Minority Interest Acquisition in 1996, the Company did not consolidate the earnings of its Cory Components subsidiary for tax purposes. As such, despite a consolidated pre-tax loss in each of the years, the Company recorded a provision for income taxes from 1991 to 1995 which primarily relates to Cory Components. (4) Represents the adoption, as of January 1, 1993, of SFAS 109, "Accounting for Income Taxes." (5) Represents the write-off of unamortized deferred financing costs, a charge for unamortized debt discounts and a prepayment penalty incurred as result of the refinancing by the Company of a substantial portion of its debt in November 1994 (the "1994 Refinancing"). (6) Pro forma for the Minority Interest Acquisition and the acquisition of ADS as if they had occurred on January 1, 1995. Adjusted to reflect the sale by the Company of shares of Common Stock in the Offering and the application of the net proceeds therefrom as set forth under "Use of Proceeds." Excludes a $3.0 million extraordinary charge to be incurred as a result of the debt repayment with the net proceeds from the Offering. (7) Pro forma for the Recapitalization and adjusted for the shares of Common Stock offered hereby. Does not include 525,000 shares of Common Stock reserved for issuance pursuant to the Share Incentive Plan. (8) EBITDA represents earnings before interest expense (including amortization of debt discounts), income taxes, depreciation, amortization (including non-compete covenants, goodwill and other intangibles) and minority interest. EBITDA is presented because it may be used as one indicator of a company's cash flow. The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as a substitute for net income (loss) as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity, in each case determined in accordance with generally accepted accounting principles. The Company further believes that EBITDA is a meaningful measure of performance that is commonly used in the aerospace industry to analyze comparable companies on the basis of operating performance, leverage and liquidity. (9) Bookings represent the total invoice value of purchase orders received during the period. (10) 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. 18 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following Unaudited Pro Forma Consolidated Financial Data presents the results of operations of the Company as if the following transactions had occurred on January 1, 1995: (i) the Minority Interest Acquisition; (ii) the acquisition of ADS; (iii) the Recapitalization; and (iv) the sale by the Company of shares of Common Stock in the Offering and the application of the net proceeds therefrom as set forth under "Use of Proceeds." The Unaudited Pro Forma Consolidated Financial Data does not include the acquisition of Elsinore because such inclusion would not have had a material effect on such data. The Unaudited Pro Forma Consolidated Financial Data for the year ended December 31, 1995 reflects the combination, with appropriate adjustments, of the audited consolidated financial statements of the Company for the year ended December 31, 1995 and the audited financial statements of ADS for the year ended December 31, 1995. The Unaudited Pro Forma Consolidated Financial Data for the nine months ended September 30, 1996 reflects the combination, with appropriate adjustments, of the unaudited consolidated financial statements of the Company for the nine months ended September 30, 1996 and the unaudited financial statements of ADS for the period from January 1 through September 18, 1996, the date on which it was acquired. The Unaudited Pro Forma Consolidated Financial Data is not necessarily indicative of the results of operations that actually would have occurred had the transactions referenced above been consummated on the dates indicated, or that may be obtained in the future. The Unaudited Pro Forma Consolidated Financial Data should be read in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere in this Prospectus. 19 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
DECRANE AIRCRAFT AEROSPACE HOLDINGS, DISPLAY ACQUISITION PRO INC. SYSTEMS ADJUSTMENTS FORMA ------------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues................................ $ 55,839 $ 9,952 $ -- $ 65,791 Cost of sales........................... 43,463 6,594 444(1) 50,501 ------------- ----------- ----------- ----------- Gross profit............................ 12,376 3,358 (444) 15,290 Selling, general and administrative expenses.............................. 9,426 1,991 (882)(2) 10,535 Amortization of intangible assets....... 1,115 -- 468(3) 1,583 ------------- ----------- ----------- ----------- Operating income........................ 1,835 1,367 (30) 3,172 Interest expense........................ 3,821 150 1,955(4) 5,926 Other expenses.......................... 382 -- -- 382 ------------- ----------- ----------- ----------- Income (loss) before (provision) benefit for income taxes...................... (2,368) 1,217 (1,985) (3,136) (Provision) benefit for income taxes.... (1,078) (495) 1,484(6) (89) ------------- ----------- ----------- ----------- Income (loss)........................... $ (3,446) $ 722 $ (501) $ (3,225) ------------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- Income (loss) applicable to common stockholders.......................... $ (4,003) $ 722 $ (501) $ (3,782) ------------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- Income (loss) per common share: Pro forma for the Recapitalization.... $ (1.47)(11) Pro forma as adjusted................. Weighted average number of common shares outstanding: Pro forma for the Recapitalization.... 2,728(11) Pro forma as adjusted................. OFFERING PRO FORMA ADJUSTMENTS AS ADJUSTED ----------- ------------- Revenues................................ $ -- $ 65,791 Cost of sales........................... -- 50,501 ----------- ------------- Gross profit............................ -- 15,290 Selling, general and administrative expenses.............................. 200(7) 10,735 Amortization of intangible assets....... -- 1,583 ----------- ------------- Operating income........................ (200) 2,972 Interest expense........................ (5,177)(8) 749 Other expenses.......................... -- 382 ----------- ------------- Income (loss) before (provision) benefit for income taxes...................... 4,977 1,841 (Provision) benefit for income taxes.... -- (9) (89) ----------- ------------- Income (loss)........................... $ 4,977 $ 1,752 ----------- ------------- ----------- ------------- Income (loss) applicable to common stockholders.......................... $ 5,534(10) $ 1,752 ----------- ------------- ----------- ------------- Income (loss) per common share: Pro forma for the Recapitalization.... Pro forma as adjusted................. $ (13) Weighted average number of common shares outstanding: Pro forma for the Recapitalization.... Pro forma as adjusted................. (13)
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data. 20 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996
DECRANE AIRCRAFT AEROSPACE HOLDINGS, DISPLAY ACQUISITION PRO INC. SYSTEMS ADJUSTMENTS FORMA ------------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues................................ $ 43,059 $ 7,706 $ -- $ 50,765 Cost of sales........................... 33,277 4,855 284(1) 38,416 ------------- ----------- ----------- ----------- Gross profit............................ 9,782 2,851 (284) 12,349 Selling, general and administrative expenses.............................. 7,229 1,286 (203)(2) 8,312 Amortization of intangible assets....... 538 -- 214(3) 752 Gain on litigation settlement........... (157) -- -- (157) ------------- ----------- ----------- ----------- Operating income........................ 2,172 1,565 (295) 3,442 Interest expense........................ 2,821 52 935(4) 3,808 Other expenses.......................... 183 -- (89)(5) 94 ------------- ----------- ----------- ----------- Income (loss) before (provision) benefit for income taxes...................... (832) 1,513 (1,141) (460) (Provision) benefit for income taxes.... (265) (615) 814(6) (66) ------------- ----------- ----------- ----------- Income (loss)........................... $ (1,097) $ 898 $ (327) $ (526) ------------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- Income (loss) applicable to common stockholders.......................... $ (1,941) $ 898 $ (327) $ (1,370) ------------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- Income (loss) per common share: Pro forma for the Recapitalization.... $ (.71)(11) Pro forma as adjusted................. Weighted average number of common shares outstanding: Pro forma for the Recapitalization.... 2,728(11) Pro forma as adjusted................. OFFERING PRO FORMA ADJUSTMENTS AS ADJUSTED ----------- ------------- Revenues................................ $ -- $ 50,765 Cost of sales........................... -- 38,416 ----------- ------------- Gross profit............................ -- 12,349 Selling, general and administrative expenses.............................. 150(7) 8,462 Amortization of intangible assets....... -- 752 Gain on litigation settlement........... -- (157) ----------- ------------- Operating income........................ (150) 3,292 Interest expense........................ (3,291)(8) 517 Other expenses.......................... -- 94 ----------- ------------- Income (loss) before (provision) benefit for income taxes...................... 3,141 2,681 (Provision) benefit for income taxes.... -- (9) (66) ----------- ------------- Income (loss)........................... $ 3,141 $ 2,615 ----------- ------------- ----------- ------------- Income (loss) applicable to common stockholders.......................... $ 3,985(10) $ 2,615 ----------- ------------- ----------- ------------- Income (loss) per common share: Pro forma for the Recapitalization.... Pro forma as adjusted................. $ (12) Weighted average number of common shares outstanding: Pro forma for the Recapitalization.... Pro forma as adjusted................. (13)
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data. 21 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (1) Represents an increase in depreciation expense to reflect a $1.7 million increase in the fair value of assets acquired in the acquisition of ADS. The acquired assets are being depreciated using the straight-line method over their remaining estimated useful lives, ranging from two to five years. (2) For the year ended December 31, 1995, represents: (i) an increase in depreciation expense of $85,000 to reflect an increase in the fair value and useful lives of assets acquired in the acquisition of ADS; (ii) a decrease of $666,000 in minority shareholder compensation expense paid pursuant to an employment agreement which was cancelled upon the closing of the Minority Interest Acquisition, net of $185,000 of estimated compensation that would have been earned during the period as provided for in the post-acquisition employment agreement; and (iii) a decrease in selling, general and administrative expenses of $301,000 reflecting a reversal of corporate expenses allocated to ADS by its former owner, net of estimated incremental corporate expenses of ADS to the Company. For the nine months ended September 30, 1996, represents: (i) an increase in depreciation expense of $54,000 to reflect an increase in the fair value and useful lives of assets acquired in the acquisition of ADS; and (ii) a decrease in selling, general and administrative expenses of $257,000 reflecting a reversal of corporate expenses allocated to ADS by its former owner, net of estimated incremental corporate expenses of ADS to the Company. (3) Represents an increase in amortization expense of: (i) $208,000 and $26,000 for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, pertaining to the amortization on a straight-line basis over 26 years of $5.3 million of goodwill related to the Minority Interest Acquisition; and (ii) $260,000 and $188,000 for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, pertaining to the amortization on a straight-line basis over 30 years of $7.7 million of goodwill related to the ADS acquisition. (4) Represents: (i) additional interest expense for indebtedness incurred to finance the acquisition of ADS and the Minority Interest Acquisition of $2.1 million and $1.0 million for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively; and (ii) a reversal of interest expense allocated to ADS by its former owner of $150,000 and $52,000 for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, for debt obligations not assumed by the Company. (5) Represents the reversal of the minority stockholder's 25% equity in the earnings of a consolidated subsidiary prior to the Minority Interest Acquisition. For the year ended December 31, 1995, the subsidiary incurred a net loss of $2,000 and, as a result, the minority stockholder's 25% equity interest in the operating results was immaterial. (6) Represents a reduction in the provision for income taxes to reflect income tax expense assuming the taxable income of ADS and the Company's Cory Components subsidiary, which was formerly 75% owned, was included in the Company's consolidated federal and state income tax returns for the periods presented and offset against the net operating losses incurred by the Company's other operations for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively. (7) Represents incremental general and administrative expenses associated with regulatory compliance requirements including listing, registrar and transfer agent fees, quarterly and annual report and proxy statement preparation and distribution expenses, legal and accounting fees and directors' and officers' liability insurance premiums. (8) Represents a decrease in interest expense to reflect the sale by the Company of shares of Common Stock in the Offering and the application of the net proceeds therefrom as set forth under "Use of Proceeds." (9) Increases in pro forma taxable income would have been offset by the utilization of net operating loss carryforwards. Therefore, no adjustment to the provision for income taxes is necessary. (10) Reflects the elimination of preferred share dividends as a result of the Recapitalization and the effect of the Offering adjustments. (11) See "Notes to Consolidated Financial Statements." (12) Reflects the Recapitalization as well as the acquisition and Offering adjustments. (13) Reflects the shares resulting from the Recapitalization and the Offering. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's results of operations have been affected by its history of acquisitions. The Company commenced operations in October 1990 with the acquisition of Hollingsead International, Inc. ("Hollingsead"), a manufacturer of avionics support structures at the time of the acquisition. In October 1991, the Company acquired Tri-Star Electronics International, Inc. ("Tri-Star"), Tri-Star Electronics Europe, S.A. ("Tri-Star Europe"), 75% of Cory Components, and 74.5% of Tri-Star Technologies ("TST") (collectively, the "Tri-Star Companies") which primarily manufacture contacts, connectors and harness assemblies for the commercial aircraft industry. In February 1996, the Company completed the Minority Interest Acquisition. In September 1996, the Company acquired ADS, a manufacturer of dichroic LCD devices and in December 1996, the Company acquired Elsinore and purchased the AMP Facility. From 1991 to 1995, a period of declining demand for new aircraft, the Company's management refocused and expanded the businesses the Company acquired in the Hollingsead and Tri-Star Companies transactions. The Company has established Hollingsead, which was solely a manufacturing company when acquired, as a full-service systems integrator of avionics concentrated in the retrofit market. Concurrently, the Company has enhanced the market positions of the Tri-Star Companies as a leading supplier of certain avionics components in the OEM market. The Company's ability to improve the performance of its acquired businesses is reflected in the revenue growth of Hollingsead and the Tri-Star Companies, which increased 31.0% on a consolidated basis between 1992 and 1995. This growth occurred despite a steep decline in new aircraft deliveries from a peak of approximately 770 in 1991 to a low of approximately 370 in 1995, according to the S&P Report. Specific contributors to the Company's growth during this period of decline included: (i) the establishment of a balanced offering of products and services for the OEM market, the retrofit market and the aftermarket; (ii) the initiation of private labeling programs pursuant to which the Company manufactures contacts for other connector manufacturers, including certain of the Company's competitors; (iii) the development of new products such as speciality connectors for Boeing's 777 aircraft; and (iv) the diversification into new services such as the integration of in-flight entertainment systems. Historically, the Company's systems integration operations have been affected by the timing and magnitude of program awards, at times resulting in quarterly and yearly fluctuations in revenue and earnings. Specifically, the Company's systems integration operations have been dominated in recent years by sales to AT&T relating to the integration of AT&T's in-flight passenger telecommunications systems. The Company believes it has lessened its exposure to these fluctuations by developing capabilities in three additional major systems integration areas: in-flight entertainment systems, satellite communication and navigation systems, and safety systems. The Company has secured orders for integration services in each of these targeted areas: in-flight entertainment systems for Swissair (through IFT), satellite communication systems for American Airlines, Inc. ("American Airlines") (through Rockwell Collins and Triad International Maintenance Corporation ("TIMCO")), and safety systems for a major package delivery service. In addition, the Company continues to provide systems integration services to AT&T. Certain of the contact blanks used by the Company in the production of its contacts are manufactured at the Company's Swiss facility and shipped to its El Segundo, California facility for plating and assembly. Accordingly, the Company has been, and will continue to be, exposed to fluctuations in the currency exchange rate between the U.S. Dollar and the Swiss Franc. Due to the weakening of the U.S. Dollar against the Swiss Franc in 1995, the cost of contact blanks in U.S. Dollars increased by $.9 million over 1994 levels. In 1996, solely in an effort to mitigate the effects of currency fluctuations, the Company entered into forward exchange contracts at fixed rates and plans to continue this forward exchange program in the future. 23 Materials constitute approximately 45% of the cost of a finished contact. The most significant portion of the material cost is gold, although the use of copper is also substantial. The Company is and will continue to be exposed to fluctuations in gold and copper prices. The Company has undertaken programs to reduce the use of gold in the Company's plating operations. These programs, on a comparable basis, have saved the Company an estimated $.7 million for the nine months ended September 30, 1996 compared to the same period in 1995. In addition to providing cost savings, the Company believes that these programs reduced its exposure to gold price fluctuations. Prior to the Minority Interest Acquisition in 1996, the Company did not consolidate the earnings of its Cory Components subsidiary for tax purposes. As such, despite a consolidated pre-tax loss in each of the years, the Company recorded a provision for income taxes from 1991 to 1995 which primarily relates to Cory Components. Separately, as of December 31, 1995, the Company had net operating loss carry-forwards ("NOLs") of approximately $4.1 and $2.0 for federal and state income tax purposes, respectively. These NOLs expire in varying amounts through 2010. The amount of NOLs that may be utilized in the future may be subject to limitations due to a change in control of the Company. RESULTS OF OPERATIONS The following table sets forth the items in the Company's consolidated statements of operations as percentages of its revenues for the periods indicated:
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------ 1993 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ----------- Revenues.................................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales............................................. 75.2 77.3 77.8 76.6 77.3 ----- ----- ----- ----- ----- Gross profit.............................................. 24.8 22.7 22.2 23.4 22.7 Selling, general and administrative expenses.............. 16.5 16.4 16.9 16.0 17.2 Amortization of intangible assets......................... 2.5 2.6 2.0 2.1 1.2 ----- ----- ----- ----- ----- Operating income.......................................... 5.8 3.7 3.3 5.3 5.0 Interest expense.......................................... 6.1 6.9 6.8 6.8 6.6 Other (income) expense, net............................... (.3) .7 .7 .7 .4 ----- ----- ----- ----- ----- Loss before provision for income taxes, cumulative effect of change in accounting principle and extraordinary item.................................................... (0.0) (3.9) (4.2) (2.2) (1.9) Provision for income taxes................................ (1.3) (1.3) (1.9) (1.5) (.6) ----- ----- ----- ----- ----- Loss before cumulative effect of change in accounting principle and extraordinary item........................ (1.3) (5.2) (6.2) (3.7) (2.5) Cumulative effect on prior years of change in accounting for income taxes........................................ (.3) -- -- -- -- Extraordinary loss from debt refinancing.................. -- (.6) -- -- -- ----- ----- ----- ----- ----- Net loss.................................................. (1.6) (5.7) (6.2) (3.7) (2.5) ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES. Revenues increased $.8 million, or 1.9%, to $43.1 million for the nine months ended September 30, 1996 from $42.3 million for the nine months ended September 30, 1995. Revenues increased primarily due to the following: (i) an increase in sales of specialty connectors for cabin management and in-flight entertainment systems on Boeing's 777 aircraft; (ii) an increase in sales of harness assemblies for in-flight entertainment systems; (iii) growth in contact sales driven by new aircraft production rate increases and growth in the Company's private labeling programs; and (iv) the inclusion of the revenues of ADS for approximately two weeks in the nine months ended September 30, 1996. 24 Partially offsetting this increase was a decline in sales to AT&T of $8.4 million, reflecting the completion in 1995 of a major systems integration program primarily for American Airlines. GROSS PROFIT. Gross profit decreased $.1 million, or 1.2%, to $9.8 million for the nine months ended September 30, 1996 from $9.9 million for the nine months ended September 30, 1995. Gross profit as a percent of revenues decreased to 22.7% for the nine months ended September 30, 1996 from 23.4% for the nine months ended September 30, 1995. This decrease was attributable to the decline in sales to AT&T, as described above, which caused a shift in revenue mix from higher margin systems integration revenues to lower margin contact sales. Partially offsetting this decline was an improvement in gross profit as a percent of revenues from the sale of contacts for the nine months ended September 30, 1996, as compared to the nine months ended September 30, 1995. This improvement resulted from sustained price increases, increased sales volume, lower wage-related expenses and lower material costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses increased $.4 million, or 6.9%, to $7.2 million for the nine months ended September 30, 1996 from $6.8 million for the nine months ended September 30, 1995. SG&A expenses as a percent of revenues increased to 16.8% for the nine months ended September 30, 1996 from 16.0% for the nine months ended September 30, 1995. SG&A expenses increased primarily because the Company added staff to pursue higher sales to OEMs and to develop capabilities for in-flight entertainment, navigation and satellite communication and safety systems integration services. This increase in SG&A expenses was offset partially by the elimination of a $.5 million management fee as a result of the Minority Interest Acquisition. OPERATING INCOME. Operating income remained essentially unchanged for the nine months ended September 30, 1996 from the nine months ended September 30, 1995. A decrease in operating income resulting from the factors described above was offset by a decline of $.4 million in amortization of intangible assets as a result of the termination of certain non-compete agreements. INTEREST EXPENSE. Interest expense remained essentially unchanged for the nine months ended September 30, 1996 from the nine months ended September 30, 1995. NET LOSS. Net loss decreased $.5 million, or 30.2%, to $1.1 million for the nine months ended September 30, 1996 from a net loss of $1.6 million for the nine months ended September 30, 1995. The decrease in net loss resulted from the factors described above and a lower tax provision resulting from the Minority Interest Acquisition in February 1996. FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1994 REVENUES. Revenues increased $8.7 million, or 18.6%, to $55.8 million for 1995 from $47.1 million for 1994. This increase was attributable to an additional $6.8 million in sales to AT&T in 1995 relating to a major systems integration program primarily for American Airlines, as well as increased sales of: (i) products and services for in-flight entertainment systems; (ii) connectors for cabin management and in-flight entertainment systems on Boeing's 777 aircraft; and (iii) contacts through the Company's private labeling program. Partially offsetting this increase was a decline in sales of contacts to aircraft OEMs in 1995 due to lower production rates for new aircraft and a decline in systems integration reserves reflecting the completion of two systems integration programs in early 1995. GROSS PROFIT. Gross profit increased $1.7 million, or 15.8%, to $12.4 million for 1995 from $10.7 million for 1994. Gross profit as a percent of revenues decreased marginally to 22.2% for 1995 from 22.7% for 1994. The decrease in gross profit as a percent of revenues primarily resulted from increased material cost of approximately $.9 million caused by the weakness of the U.S. Dollar relative to the Swiss Franc. 25 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $1.7 million, or 22.2%, to $9.4 million for 1995 from $7.7 million for 1994. SG&A expenses as a percent of revenues increased marginally to 16.9% for 1995 from 16.4% for 1994. This increase resulted from an effort to develop further the sales, accounting and senior management functions of the Company's operating subsidiaries in anticipation of continued revenue growth. OPERATING INCOME. Operating income remained essentially unchanged from 1994 at $1.8 million for 1995 as a result of the factors discussed above and a marginal decrease in amortization of intangible assets. INTEREST EXPENSE. Interest expense increased $.6 million, or 17.8%, to $3.8 million for 1995 from $3.2 million for 1994 due to higher outstanding indebtedness. The 1994 Refinancing resulted in lower effective interest rates and higher outstanding indebtedness. NET LOSS. Net loss increased $.7 million, or 28.0%, to $3.4 million for 1995 from a net loss of $2.7 million for 1994 as a result of the factors described above and a higher tax provision for Cory Components, which was not consolidated for income tax purposes. FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1993 REVENUES. Revenues decreased $1.1 million, or 2.3%, to $47.1 million for 1994 from $48.2 million for 1993. This decline in revenues reflects: (i) the completion in 1993 of two systems integration programs totaling $3.3 million in sales; and (ii) lower contact sales to aircraft OEMs as aircraft production rates declined. Partially offsetting this decline were increased sales of specialty connectors for cabin management and in-flight entertainment systems on Boeing's 777 aircraft, as well as growth of the Company's private labeling programs for contacts and connectors. GROSS PROFIT. Gross profit decreased $1.2 million, or 10.5%, to $10.7 million for 1994 from $11.9 million for 1993. Gross profit as a percent of revenues decreased from 24.8% for 1993 to 22.7% for 1994. This decline was attributable to a shift in revenue mix resulting from the growth of the Company's private labeling programs for contacts and connectors, which had lower gross profits as a percent of revenues than the two systems integration programs which were completed in 1993. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased $.3 million, or 3.0%, to $7.7 million for 1994 from $8.0 million for 1993 as the Company reduced SG&A expenses to offset a decrease in sales volume. As a percent of revenues, SG&A expenses decreased marginally to 16.4% for 1994 from 16.5% for 1993. OPERATING INCOME. Operating income decreased $1.0 million, or 36.6%, to $1.8 million for 1994 from $2.8 million for 1993. The decrease in operating income resulted from the factors described above. INTEREST EXPENSE. Interest expense increased $.3 million, or 10.3%, to $3.2 million for 1994 from $2.9 million for 1993. This increase resulted from higher outstanding indebtedness after the 1994 Refinancing, partially offset by lower effective interest rates. NET LOSS. Net loss increased $1.9 million to $2.7 million for 1994 from a net loss of $.8 million for 1993 due to the factors described above as well as: (i) an increase of $.4 million in foreign exchange losses incurred on contact blanks shipped from the Company's Swiss facility; and (ii) $.3 million in extraordinary losses resulting from the write-off of deferred financing expenses in association with the 1994 Refinancing. LIQUIDITY AND CAPITAL RESOURCES The Company has required cash primarily to fund acquisitions and, to a lesser extent, to fund capital expenditures and for working capital. 26 For the nine months ended September 30, 1996 and the year ended December 31, 1995, the Company generated cash from operating activities of $3.1 million and $1.5 million, respectively. Cash from operating activities is net of interest payments of $1.8 million and $3.3 million for the nine months ended September 30, 1996 and year ended December 31, 1995, respectively. With the net proceeds of the Offering, the Company estimates that it will repay a significant portion of the debt. As a result the related interest payments will decrease substantially. See "Use of Proceeds." The Company generated $.3 million in cash from a decrease in working capital for the nine months ended September 30, 1996 and used $1.3 million in cash for the year ended December 31, 1995 to increase working capital. Trade receivables increased $.5 million for the nine months ended September 30, 1996 and $1.6 million in the year ended December 31, 1995, respectively, due to higher sales. Unbilled receivables on revenues recognized under the percent of completion method increased $.5 million for the nine months ended September 30, 1996 as a result of the systems integration program for Swissair (through IFT) that began in mid-1996. Unbilled receivables decreased by $3.9 million in 1995 as a result of the completion of a systems integration program for AT&T in 1995. Inventories decreased by $1.1 million for the nine months ended September 30, 1996 as a result of inventory reduction programs in 1996. Inventories increased by $3.0 million in 1995 in support of sales growth. Accounts payable decreased by $.5 million in the nine months ended September 30, 1996 primarily as a result of a reduction of inventory in 1996. Accounts payable decreased by $1.0 million in 1995 due to the application of cash made available by the 1994 Refinancing. Net cash used in investing activities was $17.4 million for the nine months ended September 30, 1996 and $1.5 million for the year ended December 31, 1995. Of the $17.4 million used in 1996, $16.6 million related to the Minority Interest Acquisition in February 1996 and the acquisition of ADS in September 1996. Capital expenditures of $.7 million and $1.2 million were made in the nine months ended September 30, 1996 and in the year ended December 31, 1995, respectively. Capital expenditures were incurred to: (i) purchase tooling in support of proprietary products; (ii) upgrade machinery and equipment; and (iii) increase manufacturing capacity in support of sales growth. Major ongoing capital expenditure projects include $.6 million for improved plating controls and $1.0 million for a new management information system. Net cash provided by financing activities for the nine months ended September 30, 1996, was $14.1 million. Specifically, the Company financed the Minority Interest Acquisition (including the related fees and expenses) in February 1996 through the sale of its Series D Convertible Preferred Stock and warrants to Nassau for $6.5 million. In September 1996 the Company financed the acquisition of ADS (including the related fees and expenses) through the sale of its Series E Convertible Preferred Stock and warrants for $3.0 million, the issuance of the Convertible Notes and warrants for $3.0 million and an increase and a drawdown under the Senior Revolver of $5.4 million. The Series E Convertible Preferred Stock, Convertible Notes and related warrants were issued to Nassau and Electra. At the time of the ADS acquisition, availability under the Senior Revolver was increased by an additional $1.5 million to fund potential future working capital and capital expenditure requirements. In the year ended December 31, 1995, repayments of senior debt and capital lease obligations were offset by increased borrowing under the Senior Revolver, resulting in DE MINIMIS net cash provided by financing activities. Cash decreased by $.2 million for the nine months ended September 30, 1996 and increased $.1 million for the year ended December 31, 1995 due to the factors described above. Availability under the Senior Revolver as of September 30, 1996 was $3.4 million versus $.7 million as of December 31, 1995. Contributing to the increase in availability was a $1.5 million increase in the maximum borrowings permitted under the Senior Revolver, net of the financing for the ADS acquisition, as discussed above. In December 1996, the Company acquired Elsinore and purchased the AMP Facility. The acquisition of Elsinore was financed by the Seller Note and $1.3 million borrowed under the Senior Revolver. The initial cash portion of the purchase price of the AMP Facility was financed through an increase of 27 $5.0 million in the Senior Term Notes and the balance of $.4 million through a drawdown under the Senior Revolver. As of September 30, 1996, the maximum amount which the Company could borrow under the Senior Revolver was $12.5 million and the principal amount outstanding was $9.1 million. Of the amounts outstanding under the Senior Revolver, $8.0 million bear interest at the Eurodollar Rate plus 4.5% per annum (10.0% as of September 30, 1996) with the remainder bearing interest at the lender's prime rate plus 3.25% per annum (11.5% as of September 30, 1996). The Senior Revolver becomes due on September 18, 1999. In September 1996, the Company borrowed $5.4 million under the Senior Revolver to fund a portion of the ADS purchase price. The Company borrowed an additional $1.7 million under the Senior Revolver to fund a portion of the purchase price of Elsinore and the purchase price of the AMP Facility. The Company is in negotiations with banks to provide the New Credit Facility which is expected to provide for a term loan and a revolving credit facility in an aggregate amount of $40.0 million. The New Credit Facility is expected to be secured by substantially all the assets of the Company. It is a condition to the consummation of the Offering that the Company obtain the New Credit Facility. ENVIRONMENTAL MATTERS The Company is subject to various federal, state, local, and foreign environmental requirements, including those relating to discharges to air, water, and land, the handling and disposal of solid and hazardous waste, and the cleanup or properties affected by hazardous substances. In addition, certain environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and similar state laws impose strict, retroactive, and joint and several liability upon persons responsible for releases or potential releases of hazardous substances. Some risk of environmental liability is inherent in the nature of the Company's business, and the Company might in the future incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental requirements. See "Risk Factors--Environmental Regulation," "Business--Environmental Regulation" and "Business--Legal Proceedings." FORWARD-LOOKING STATEMENTS This Prospectus, particularly the sections entitled "Prospectus Summary," "Use of Proceeds," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains certain forward-looking statements and other statements that are not historical facts concerning, among other things, market conditions of the aircraft industry, the demand for avionics components and systems and future strategic acquisitions. There can be no assurance that the Company has accurately identified and properly weighed all of the factors which affect market conditions and demand for the Company's products and services, that the public information upon which the Company has relied is accurate or complete or that the Company's analysis of the market and demand for its products and services is correct and, as a result, the strategy based on such analysis will be successful. See "Risk Factors" for a more detailed summary of factors which could affect future results. 28 BUSINESS GENERAL The Company is a manufacturer of avionics components and a provider of avionics systems integration services in certain niche markets of the commercial aircraft industry. The products and services offered by the Company are utilized primarily in commercial aircraft to connect, support and/or integrate various avionics systems, including cabin avionics systems and flight deck avionics systems. The Company's targeted markets consist of commercial aircraft and avionics OEMs, the commercial aircraft retrofit market and the commercial aircraft aftermarket. The Company also sells products and services to the military aircraft market. The Company seeks to maximize its sales by emphasizing the complementary nature of its products and services. Components manufactured by the Company include: (i) contacts (of which the Company believes it is the largest supplier to the commercial aircraft industry); (ii) connectors (which often utilize the contacts manufactured by the Company); (iii) harness assemblies (which often utilize the connectors manufactured by the Company); and (iv) avionics support structures (which often are packaged with the Company's connectors and harness assemblies in installation kits). In addition, the Company manufactures dichroic LCD devices, which are used with flight deck avionics, and believes it is the largest supplier of such devices to the commercial aircraft industry. The systems integration services provided by the Company include design and engineering, FAA certification, manufacture of installation kits and systems installation. The Company manufactures many of the components required to complete a systems integration project, which it believes provides it a critical competitive advantage. The Company was formed in 1989 to capitalize on emerging trends in the aircraft market through acquisitions. Since its formation, the Company has completed eight acquisitions of businesses or assets. A summary of these transactions follows:
YEAR OF TRANSACTION TARGET PRINCIPAL PRODUCTS AND SERVICES(1) - ------------- ------------------------- ------------------------------------------ APPROXIMATE PURCHASE PRICE(2) ------------------- (IN MILLIONS) 1990 Hollingsead Avionics support structures $ 9.1 1991 Tri-Star Contacts and connectors *(3) 1991 Tri-Star Europe Contact blanks *(3) 1991 TST Wire marking equipment *(3) 1991 Cory Components Connectors and harness assemblies 7.7(4) 1996 ADS Dichroic LCD devices 13.3 1996 Elsinore Engineering services 2.6 1996 AMP Facility Contact blanks 7.0
- ------------------------ (1) At the time of the transaction. (2) Includes, where applicable, related fees and expenses and post closing adjustments. (3) Although each of Tri-Star, Tri-Star Europe and TST was acquired pursuant to a separate agreement, the purchase price, which was $10.4 million, for all three entities was determined in the aggregate. (4) The Company acquired 75% of Cory Components in 1991 for approximately $2.0 million. In February 1996, the Company acquired the 25% which it did not already own for approximately $5.7 million. The Company commenced its operations in October 1990 with the acquisition of Hollingsead, which, at the time of the acquisition, was solely a manufacturer of avionics support structures. The Company expanded its manufacturing operations with the 1991 acquisition of the Tri-Star Companies. The Company's management has refocused and expanded the businesses which were acquired in the 29 Hollingsead and Tri-Star Companies transactions. By capitalizing on Hollingsead's manufacturing strength in avionics support structures, which are used extensively in the systems integration process, the Company has expanded Hollingsead into a full-service systems integrator concentrated in the retrofit market. Concurrently, the Company has enhanced the market positions of the Tri-Star Companies as a leading supplier of certain low-cost, high-quality avionics components. Management has focused on reducing costs, improving quality and increasing the market penetration of the components manufactured by the Tri-Star Companies. In 1996, the Company completed: (i) the acquisitions of ADS and Elsinore; (ii) the purchase of the AMP Facility; and (iii) the Minority Interest Acquisition. The acquisition of ADS, a manufacturer of dichroic LCD devices, which the Company believes is the largest supplier of such products to the commercial aircraft industry, expanded the Company's offering of components used in flight deck avionics systems. The Company believes that the acquisition of ADS will allow it to capitalize on the upturn in aircraft OEM production by increasing its revenue content per aircraft as well as enhancing the Company's position with its major customers. The acquisition of Elsinore, with its DAS approval, permits the Company to issue, through Elsinore, on behalf of the FAA, certification that the designs of aircraft modifications performed in connection with systems integration work conform to all pertinent FAA requirements. Such certifications are issued as FAA-approved STCs, which constitute, in effect, specific FAA design approval for each modification. In addition, the acquisition of Elsinore enhanced the Company's systems integration capabilities and increased the number of engineering professionals dedicated to the Company's systems integration effort by approximately 50%. The acquisition of Elsinore also provided the Company with an important new customer in the aircraft industry, Daimler Benz Aerospace, and the opportunity to obtain additional customers. The Company's purchase of the AMP Facility added contact capability and capacity which will enable the Company to optimize and expand its contact manufacturing operations. The AMP Facility enables the Company to produce contact blanks using a cold-heading manufacturing process which, when used for high volume production, is more cost effective than the Company's existing screw machine operations. As a result of the purchase of the AMP Facility the Company will have the opportunity to make increased sales to certain distributors that formerly purchased contacts from other entities within AMP. INDUSTRY OVERVIEW AND TRENDS The Company participates in the commercial and military segments of the aircraft industry. Within these segments, the Company sells to commercial and military aircraft OEMs and major avionics equipment OEMs as well as to the aircraft retrofit market and aircraft aftermarket. On December 15, 1996, Boeing and McDonnell Douglas announced that they had agreed to merge. The merger is subject to certain conditions, including the receipt of regulatory approvals. Neither Boeing nor McDonnell Douglas has made any announcements of any changes to their respective businesses following the merger. The Company is unable to determine at this time the effect, positive or negative, of the merger should it be consummated. Prior to the announcement of the merger, the market for commercial aircraft designed to carry 100 or more passengers was served principally by Boeing, Airbus and McDonnell Douglas. The market for commercial aircraft designed to carry fewer than 100 passengers is served by more than a half dozen other manufacturers. The major systems installed on new commercial and military aircraft, such as flight deck avionics systems, are produced by a limited number of OEMs, including AlliedSignal Inc., Rockwell Collins, General Electric Company, Honeywell, Inc. ("Honeywell"), Raytheon Co. and Sextant Avionique, Inc. Components and sub-systems for new aircraft are provided by a much more fragmented group of companies, consisting of numerous smaller, specialized companies, such as the Company. The aircraft retrofit market (the integration of new systems into existing aircraft) and the aircraft aftermarket (the manufacture and sale of replacement products for existing aircraft) are served by a 30 highly fragmented group of companies. Many of these companies were formed primarily in response to increased outsourcing by airlines of internal engineering capabilities. Products and services provided within the aircraft aftermarket and aircraft retrofit market include aircraft replacement components and systems and aircraft repair, maintenance, overhaul and systems integration services. The Company believes that there are numerous barriers to entry which limit access to the aircraft industry. These barriers include: (i) general FAA certification requirements, including those necessary to perform aircraft modifications or maintenance; (ii) required compliance with military specifications for certain products sold to commercial and military markets; (iii) required compliance with qualification and approval standards imposed by aircraft and avionics systems OEMs in addition to FAA aircraft manufacturing and aircraft modification design and installation standards; (iv) reluctance of OEMs to list new companies as approved vendors on the engineering drawings of the OEMs (referred to as "print position"); and (v) significant initial capital investment and tooling requirements necessary for the manufacture of certain aircraft components and systems. The Company believes the following trends are affecting the commercial aircraft industry: INCREASED DEMAND FOR NEW AIRCRAFT. According to the Boeing Report, expenditures on new aircraft production are expected to increase from an average of approximately $34 billion per year for the period 1991 through 1995 to approximately $46 billion per year for the period 1996 through 2000. These expenditures are expected to result in the addition of nearly 3,500 new aircraft to the worldwide fleet of 11,000 aircraft. The Company believes that the following factors, among others, are causing this increase in new aircraft orders: (i) projected worldwide airline traffic growth of 5.1% per year (including growth of 7.1% per year in the Asia-Pacific region and 11.5% per year in China); (ii) projected cargo traffic growth of 6.7% per year; (iii) projected increase in the load factor of aircraft currently in service; (iv) increases in the average age of commercial aircraft; (v) the cost effectiveness of using new aircraft versus old aircraft; and (vi) a turnaround in worldwide airline operating performance (from substantial operating losses in 1992 to approximately $12 billion in operating profit in 1995). DOWNSIZING AND OUTSOURCING. Airlines have come under increasing pressure to reduce operating and capital costs associated with providing services. In response, airlines have increased purchases of certain components from third parties and have outsourced certain repair, overhaul and retrofit functions. Similarly, aircraft and avionics OEMs increasingly are reducing their level of vertical integration by outsourcing more manufacturing, repair and retrofit functions to third parties. The Company believes that these trends are creating increased demand for low-cost, high-quality component manufacturers and systems integrators, such as the Company. INDUSTRY CONSOLIDATION IN CERTAIN SEGMENTS. Certain segments of the commercial aircraft industry, such as those that include manufacturers of components and providers of aircraft retrofit, overhaul and repair services, have been undergoing consolidation. The Company believes that several factors are contributing to this consolidation, including: (i) the high level of fragmentation within these segments; (ii) the continuing efforts by OEMs to minimize purchasing costs, streamline operations and achieve greater control of quality through a rationalization of their supplier bases; and (iii) the increased demands placed on suppliers due to the just-in-time requirements of their customers. INCREASED DEMAND FOR CABIN AVIONICS SYSTEMS. In recent years, there has been an increase in demand for cabin avionics systems, which include in-flight passenger telecommunications systems as well as in-flight entertainment systems, such as video, video-on-demand and casino-style electronic gaming. In-flight passenger telecommunications systems primarily are produced by major providers of terrestrial and satellite-based communication services and in-flight entertainment systems primarily are produced by a diverse group of companies, ranging from small entrepreneurial start-ups to large electronics and media companies. In-flight entertainment and passenger telecommunication systems generally are integrated onto aircraft by third parties, such as the Company, as well as by airlines and 31 avionics OEMs. The Company believes that the increased demand primarily has resulted from: (i) a desire by airlines for additional revenue-producing services; and (ii) longer flights combined with a demand by airline passengers for more sophisticated forms of in-flight services. PROLIFERATION OF NEW AVIONICS TECHNOLOGIES FOR FLIGHT DECKS. The prevalence of older generation avionics equipment is a primary limiting factor in establishing a more efficient air traffic management system. The commercial aircraft industry, including the world's airlines, aircraft and avionics OEMs and regulatory agencies, have organized to develop the necessary industry standards, regulations and system requirements for future air navigation systems ("FANS"). Through the implementation of FANS, a complete modernization of both airborne and ground-based air traffic management systems is expected to be introduced and to result in significant improvements over existing systems. Anticipated benefits of FANS include cost savings and enhanced safety. As overall navigation system accuracy is improved, new navigation systems, such as satellite communication ("SATCOM") systems and global positioning systems ("GPS"), will be required which the Company believes will present numerous aircraft avionics retrofit opportunities. There also has been a proliferation of new safety systems for flight decks driven by the advent of new technologies and FAA mandates. For example, traffic collision avoidance systems ("TCAS") and windshear detection systems are now required for passenger aircraft operating in the U.S. The Company believes that these safety systems may be mandated for all cargo carriers and flights outside the U.S. In addition, the Company believes that the FAA will recommend or mandate additional safety systems such as an enhanced ground proximity warning system, a predictive (forward-looking) windshear detection system and an enhanced digital flight data recorder. COMPETITIVE STRENGTHS The Company believes that it is well-positioned to take advantage of the current trends and expected growth in the commercial aircraft industry as a result of the following competitive strengths: LEADING POSITIONS IN NICHE MARKETS. The Company successfully has established strong positions in several specialized niches within the commercial aircraft industry. The Company believes that it is the largest supplier of contacts and dichroic LCD devices for use in commercial aircraft and a major supplier of harness assemblies for use in in-flight entertainment systems. The Company seeks to utilize its strong market positions to compete more effectively as well as to capitalize on industry consolidation trends. RECORD OF SUCCESSFUL ACQUISITIONS. Since its formation in 1989, the Company has completed eight acquisitions of businesses or assets, including, in 1996, acquisitions of ADS and Elsinore and the purchase of the AMP Facility. The Company has demonstrated its ability to: (i) identify strategic acquisition targets; (ii) complete the acquisition of identified targets; and (iii) increase revenues of an acquired company, often while refocusing that company's business strategy. For example, the Company acquired Hollingsead in 1990, which was, at that time, solely a manufacturer of avionics support structures. From 1992 through 1995, the Company increased revenues 74.3% at Hollingsead and expanded its operations from that of a component manufacturer to that of a full-service systems integrator. The Company believes that its acquisition success has resulted from its ability to identify and screen acquisition candidates, implement an effective cost reduction program and expand and diversify the products and services provided by an acquired company. ALIGNMENT WITH LEADING AVIONICS AND AIRCRAFT OEMS AND SUPPLIERS. The Company seeks to maximize its growth by establishing long-term relationships with leaders in the Company's primary markets. For example, the Company has entered into supply agreements with Boeing. The Company believes that through these agreements it is the supplier of a substantial majority of the contacts for all aircraft currently manufactured by Boeing and the sole source supplier of certain connectors for in-flight entertainment systems installed by Boeing on its 777 aircraft. The Company is also: (i) a primary supplier 32 of harness assemblies to Matsushita for its in-flight entertainment systems; (ii) the preferred integrator for the in-flight casino-style electronic gaming and video-on-demand systems of IFT; and (iii) a preferred systems integrator for the passenger telecommunications systems of AT&T. NUMEROUS INDUSTRY AND REGULATORY APPROVALS. The Company holds three PMAs from the FAA and 64 supplements to its PMA's authorizing the Company to manufacture and install numerous parts in many different aircraft. The Company also has three FAA domestic repair station certificates which authorize it to perform certain aircraft modifications. The Company employs FAA-certified airframe and power-plant mechanics who are authorized to perform certain aircraft modification functions. In addition, through its acquisition of Elsinore, the Company is one of only 26 DASs worldwide (as of March 28, 1996, the date of the most recent available data from the FAA) which are authorized by the FAA to provide FAA approval of aircraft modifications. The DAS approval enables the Company to act as a designee of the FAA in issuing certain STCs. LOW-COST, HIGH-QUALITY OPERATIONS. The Company believes that it has established low-cost operations through well-defined cost reduction programs, technological development and the use of vertical integration, where appropriate. The Company's low-cost operations are demonstrated, for example, by the growth of the Company's contact private labeling programs under which the Company supplies contacts to many of its competitors. The Company uses sophisticated procedures and processes to ensure its products meet or exceed industry and customer quality requirements. Many customers formally have recognized the effectiveness of the Company's quality programs by issuing quality approval letters, awarding quality compliance certificates and authorizing the Company's inspection personnel to act as the authorized quality representative of the customer. For example, in February 1996, the Company became the 13th Boeing supplier to receive its D1-9000 Advanced Quality System award. ENGINEERING AND RELATED TECHNICAL CAPACITY. More than 12% of the Company's employees are engineering professionals, providing the Company with significant in-house engineering capability and key technical expertise. For example, the Company believes that it is one of a few companies with the capability to perform full-service systems integration functions (design and engineering, FAA certification, installation kit manufacturing and installation of cabin avionics and flight deck avionics systems on aircraft). This level of expertise enables the Company to respond rapidly and effectively to the technical requirements of its customers as well as to capitalize on the outsourcing trends in the commercial aircraft industry. MANAGEMENT DEPTH AND EXPERIENCE. The Company has assembled a team of executives, program managers and engineers from many of the major manufacturers and suppliers to the aircraft industry. Key management and professional employees of the Company bring experience with them from such companies as The B.F. Goodrich Co. ("B.F. Goodrich"), B/E Aerospace, Inc., COMSAT Corp., Honeywell, Hughes-Avicom International, Inc., Litton Industries, Inc., Matsushita and McDonnell Douglas, providing the Company with a diversity of commercial aircraft industry expertise. On average, the Company's executive management has approximately 17 years of related industry experience. GROWTH STRATEGY The Company's principal strategy is to establish and expand leading positions in high-margin, niche markets within the commercial aircraft industry, with a focus on the manufacture of avionics components and the integration of avionics systems. The Company seeks to achieve these leading positions while maintaining a balance of revenues among the OEM market, the retrofit market and the aftermarket. The Company believes that such a strategy will position it for growth over an entire commercial aircraft industry economic cycle. Specifically, the Company seeks to: CAPITALIZE ON GROWTH IN COMMERCIAL AIRCRAFT PRODUCTION. The Company believes its strong market positions and alignment with many of the leading commercial aircraft industry participants will enable it to capitalize on the projected increase in commercial aircraft production. The Company believes that 33 every aircraft currently produced by Boeing, Airbus and McDonnell Douglas includes components manufactured by the Company. As orders for the Company's aircraft components have increased, the Company has worked closely with OEMs to meet their delivery and scheduling requirements. In addition, the Company seeks to increase its revenue content per plane by introducing new products, expanding the use of existing products and through strategic acquisitions of companies which supply components to the OEMs. EXPLOIT INCREASED DEMAND FOR CABIN AVIONICS SYSTEMS. The Company believes that the demand for cabin avionics systems is increasing, primarily as a result of: (i) a desire by airlines for additional revenue-producing services; and (ii) longer flights combined with a demand by airline passengers for more sophisticated forms of in-flights services. The Company manufactures components (contacts, connectors, harness assemblies and avionics support structures) which are used with cabin avionics systems, as well as provides the systems integration services necessary to install such systems on aircraft. The Company believes that it competes effectively in the cabin avionics market by offering to its customers a full-service organization, capable of providing interconnect hardware and support structures for cabin avionics systems combined with the design and engineering, FAA certification and installation services required to integrate such systems. EXPAND AND DIVERSIFY SYSTEMS INTEGRATION SERVICES. Historically, the Company's systems integration services have been concentrated in the in-flight passenger telecommunications market. In 1995, the Company commenced an effort to diversify the types of systems which it retrofits onto aircraft by expanding its expertise and sales efforts to include navigation and satellite communication, safety, and in-flight entertainment systems. As of September 30, 1996, the Company had contracted to provide systems integration services for SATCOM systems (American Airlines through Rockwell Collins and TIMCO), safety systems (a major package delivery service), and in-flight entertainment systems (Swissair through IFT). In addition, as of September 30, 1996, the Company had drafted proposals in response to more than 40 active requests for proposals for these and other types of systems. COMPLETE ADDITIONAL STRATEGIC ACQUISITIONS. The Company seeks to identify and pursue complementary acquisitions at attractive prices in the aircraft industry that offer strategic value, such as cost savings, product line extensions, increased manufacturing capacity or new customer relationships. The Company initiated discussions with all three of the sellers in its recent transactions (ADS, Elsinore and the AMP Facility), each of which is of significant strategic value to the Company. ADS expands the Company's presence on the flight deck with a product that has a leading niche market position. Elsinore provides the Company with a DAS approval, increases its engineering expertise and expands its customer base. The AMP Facility expands the Company's manufacturing capacity and provides it with new low-cost manufacturing techniques. While there can be no assurance that the Company will complete additional acquisitions, the Company believes that the fragmented nature of the market for aircraft components and systems integration services will provide the Company with additional opportunities to exploit industry consolidation trends. CAPITALIZE ON COMPLEMENTARY PRODUCTS AND SERVICES: The majority of the Company's products and services are utilized to provide an interface between an aircraft and its avionics systems. Over the past several years, the Company increasingly has combined certain of the components which it manufactures to create higher value-added products. For example, the contacts manufactured by the Company often are utilized as an integral component of the Company's connectors. In turn, the connectors manufactured by the Company often are utilized as primary components of the Company's harness assemblies. Additionally, in support of the systems integration services provided by the Company, the Company's harness assemblies often are packaged with its avionics support structures to form the foundation for the installation kits which are then sold to the Company's systems integration customers. By emphasizing the complementary nature of its products and services, the Company seeks to maximize penetration with existing customers and compete more effectively for new customers. 34 PRODUCTS AND SERVICES The Company's principal products and services are: contacts; connectors; harness assemblies; avionics support structures; dichroic LCD devices and the integration of certain cabin and flight deck avionics systems into different aircraft models. The Company believes that its products are used in each of the commercial aircraft models currently produced by Boeing, Airbus and McDonnell Douglas, the three largest commercial aircraft OEMs. CONTACTS. The Company believes that it is the largest producer of precision-machined contacts for use in commercial aircraft. Contacts conduct electronic signals or electricity and are installed at the terminus of a wire or an electronic or electrical device. The Company supplies contacts for use in connectors found in virtually every electronic and electrical system on the aircraft. Over the last three years the Company has successfully initiated private labeling programs whereby the Company manufactures contacts for several of the major connector manufacturers. The Company sells contacts directly to aircraft and avionics OEMs and, through its private labeling programs, to connector manufacturers who sell connectors to the aircraft and avionics OEMs under their brand name. The Company believes that it is able to sell contacts on a private label basis because of its reputation for high-quality, its levels of service and its low-cost manufacturing operations. The Company believes that it is the supplier of a substantial majority of the contact requirements for all aircraft currently manufactured by Boeing. CONNECTORS. The Company manufactures and sells to the commercial aircraft industry electronic and electrical connectors, which provide the electronic or electrical link between discreet wires and devices. Connectors also serve as a separable interface that facilitates assembly, installation, repair and removal of wires or equipment. The Company manufactures a narrow range of electrical and electronic connectors that are designed and manufactured specifically to operate in the harsh airborne environment of an aircraft and to meet the critical performance requirements demanded by the commercial aircraft market. The Company produces connectors that are used in aircraft galleys, flight decks and control panels in the passenger cabin. The Company is the sole-source supplier of certain connectors for in-flight entertainment systems installed by Boeing on its 777 aircraft. The Company characterizes its connectors as follows: (i) application specific--designed and developed by the Company for a specific application, usually for a single customer; (ii) proprietary--Company-designed connectors which are sold to the broad market for a variety of applications, often evolving over time from an application specific product; and (iii) industry standard--produced in accordance with an industry or military controlled design or specification and sold to the broad market to which the design or specification relates. Examples of the Company's application specific, proprietary and industry standard connectors are as follows: APPLICATION SPECIFIC. The Company manufactures a connector used as an electrical distribution block for Boeing's 777 aircraft. Currently, this product is used solely for this application; however, in the future, it could be used in similar applications on other aircraft. PROPRIETARY. The CQ connector family was originally an application specific product designed by the Company for use with in-flight entertainment and cabin management systems on Boeing's 777 aircraft. The CQ connector is now sold to other customers for other applications. INDUSTRY STANDARD. The Company sells standard connectors, built to ARINC specifications, which can be used in many applications without further testing or certification. HARNESS ASSEMBLIES. The Company produces harness assemblies for use in cabin avionics systems, primarily in-flight entertainment systems. A harness assembly is made from wire, which the Company buys from its vendors, and connectors, contacts and hardware, which the Company manufactures. The Company sells its harness assemblies to avionics OEMs. In addition, the Company uses 35 harness assemblies in its systems integration activities. The Company is currently a primary supplier of harness assemblies to Matsushita, one of the largest manufacturers of in-flight entertainment systems. AVIONICS SUPPORT STRUCTURES. The Company has designed, patented and produced a wide range of avionics support structures for use on commercial aircraft. Avionics support structures are typically comprised of trays, shelving, racks, mounts, and insertion and extraction devices which are combined with other components to form the installation kit that securely holds and connects avionics equipment to the aircraft and other systems or devices such as antennae, flight instruments and power supplies. Avionics support structures are used to support and environmentally cool (using fans and air chambers) the avionics equipment, including navigation, communication and flight control equipment. Avionics support structures are generally located in the avionics bay of an aircraft and are secured to the frame of the aircraft. The Company's avionic support structures are recognized by its customers under the Box- Mount-TM- name which the Company believes is highly respected in the marketplace. The Company sells its avionics support structures to aircraft and avionics OEMs, airlines, and major modification centers. In addition, these products are essential components included in the installation kits which are used in the Company's systems integration operations. DICHROIC LCD DEVICES. Through its recent acquisition of ADS, the Company became a leading manufacturer of dichroic LCDs and modules (which are LCDs packaged with a backlight source and direct drive electronics) used in commercial and military aircraft. The Company also manufactures avionics electronic clocks which utilize its dichroic LCD devices. The Company is the leading (and often sole-source) supplier of dichroic LCD devices to aircraft and avionics OEMs and the U.S. military. The Company's dichroic LCD products, which provide output information to the flight crew, are used in a variety of flight deck applications, including flight control systems, fuel quantity indicators, airborne communications and safety systems. Dichroic LCD products are widely used in the aerospace industry because of their high performance characteristics and custom design. Key performance characteristics of dichroic LCD devices include high readability in sunlight and darkness, ability to withstand wide temperature fluctuations and readability from extreme viewing angles. During the development phase of flight deck avionics, the Company works closely with its customers to develop products that meet the customer's requirements which are subsequently incorporated into new or modified flight decks. The Company's clocks utilize its dichroic LCD technology and are suitable for use in general aviation, business, commercial and military aircraft. The Company believes that it is the only clock manufacturer which has designed a line of clocks capable of serving all types of aircraft. SYSTEMS INTEGRATION. The Company performs all of the functions necessary to retrofit an existing aircraft with an avionics system that previously did not exist on the aircraft. As a full-service systems integrator, the Company provides design and engineering, FAA certification, installation kit manufacturing and systems installation services required to retrofit an aircraft with a new system. A summary of these functions follows: DESIGN AND ENGINEERING. The Company provides a full range of systems, electrical and mechanical engineering services to its customers through its staff of qualified and experienced engineers and program management personnel. The Company's engineers work proactively with its customers in all phases of the systems integration effort to achieve an engineering design data package. This engineering design data package provides information to: (i) certify product compliance with applicable industry and FAA standards and regulations; (ii) define the manufacturing requirements for kit implementation; and (iii) provide installation definition for actual installation of the system onto aircraft. FAA CERTIFICATION. The Company employs on a full-time basis or contracts for FAA-certified designated engineering representatives ("DERs") to evaluate the engineering design data package, 36 coordinate compliance testing to applicable FAA regulations and obtain formal FAA approval of the engineering design data package. These DERs facilitate FAA approval of the Company's products and services. In general, DERs evaluate the design of an aircraft modification, part or system, ensure compliance with the applicable Federal Aviation Regulations and oversee product testing to ensure the airworthiness of the aircraft as modified. DERs also either issue, on behalf of the FAA, certain approvals, or work with the FAA to obtain certain approvals directly from the FAA. Significant aircraft modifications by anyone other than the aircraft manufacturer require the issuance of an STC, which constitutes an FAA determination that the design of the modification meets all pertinent FAA requirements. STCs may be issued directly by the FAA or on behalf of the FAA by an approved DAS. The acquisition of Elsinore and its DAS approval enables the Company to issue STCs for certain modifications without applying directly to the FAA for such certifications. INSTALLATION KIT MANUFACTURE. The Company ordinarily applies for and receives multi-aircraft STCs which constitute design approval for a modification which may be applied to any aircraft of a particular type. The approved modifications commonly are referred to as "installation kits." Such installation kits generally include: (i) parts, components, and subassemblies; and (ii) detailed instructions on approved installation. The installation kit and all of its elements are defined in the STC in a Master Data List. Once the Company has an STC, issued directly by the FAA or by the Company's DAS through Elsinore, the Company applies to the FAA for a PMA or a supplement to an existing PMA, which allows the Company to manufacture the installation kit in accordance with the approved design and data package. SYSTEMS INSTALLATION. The Company employs a dedicated team of FAA-certified mechanics and repairmen to ensure proper installation of the installation kits and associated avionics systems. These mechanics and repairmen, who have extensive installation experience over a broad range of commercial aircraft models, operate within the provisions and limitations of the FAA repair station certificate which covers the Company's three repair stations. The Company believes that its staff of kit installation personnel is sufficiently large and diverse in talent to complete multiple installation projects simultaneously at different locations. The Company has focused its systems integration efforts on the following four general categories of systems: (i) in-flight passenger telecommunication systems; (ii) in-flight entertainment systems; (iii) SATCOM and navigation systems; and (iv) safety systems. The Company has targeted these four areas because it believes significant retrofit opportunities exist due to the advent of new technologies and the need for the airlines to: (i) capture incremental revenues without increased capital investment (in-flight passenger telecommunications and in-flight entertainment); (ii) satisfy increased safety and regulatory requirements; and (iii) reduce operating expenses (SATCOM). A summary of recent Company activity in each of these categories follows: IN-FLIGHT PASSENGER TELECOMMUNICATIONS SYSTEMS. The Company is a systems integrator of in-flight passenger telecommunications systems for AT&T. The Company has provided installation kits to AT&T for telephones on over 1,000 aircraft, as well as design and engineering and certification services for certain of these aircraft. The Company is currently involved in proposals to other in-flight passenger telecommunication systems providers. IN-FLIGHT ENTERTAINMENT SYSTEMS. The Company is the preferred systems integrator for IFT. IFT is a publicly traded company which has designed a digital interactive passenger entertainment system which provides for video-on-demand, video games, and casino-style electronic gaming in which the aircraft passenger can gamble using a credit card. In July 1996, the Company entered into an agreement with IFT to fully integrate the IFT System into 21 wide-body aircraft for Swissair. The Company expects to realize a substantial portion of the revenues from such contract in 1997. IFT has advised the Company that it may place additional orders with the Company for the integration of its in-flight entertainment system for other airlines. Although IFT is not obligated to place such 37 additional orders and there can be no assurance that IFT will do so, the Company believes that its relationship with IFT represents a significant opportunity. The Swissair contract is the first large-scale commercial application of the IFT System. Delays in installation or problems in implementation of the IFT System may result in the deferral or loss of potential revenues from IFT. SATCOM AND NAVIGATION SYSTEMS. The Company presently is providing systems integration services in support of SATCOM systems. The Company recently completed efforts as a systems integrator for SATCOM systems on certain U.S. Government aircraft and has subsequently been awarded another contract. Presently, the Company is providing the systems integration services for SATCOM systems on 10 Airbus A300 for American Airlines (through Rockwell Collins and TIMCO). The Company also has active proposals for various GPS programs with both avionics OEMs and airlines. The Company believes that GPS and SATCOM systems (consistent with the FANS initiative) will be retrofitted into numerous aircraft over the next few years. In many cases, the airlines are electing to replace older navigation systems with newer GPS technology due to avionics obsolescence and significantly increased maintenance costs. SAFETY SYSTEMS. The Company is an integrator of safety systems which are required by the FAA, or voluntarily adopted by airlines. The Company recently was selected to integrate TCAS and heads-up guidance systems ("HGS") on aircraft for a major package delivery service. Currently, several major carriers in Europe and Asia actively are evaluating TCAS. In addition, the Company believes that a new "forward-looking" windshear detection system will be available by the end of 1997. The Company believes significant opportunity exists for the integration of these types of safety systems onto aircraft worldwide. OTHER. The Company has designed, developed and applied for a patent on an electrical retract mechanism to support in-flight video systems on McDonnell Douglas narrow-body aircraft. Due to space constraints, in-flight video systems generally are not available on McDonnell Douglas narrow-body aircraft. The Company's retract mechanism is configured to fit in the available space. The Company actively is marketing the system which management believes is the only video system available for these narrow-body aircraft. The Company believes that there are over 500 aircraft in the market which potentially could use such a system. INDUSTRY REGULATION AND APPROVALS The aviation industry is highly regulated in the U.S. by the FAA and is regulated in other countries by similar agencies to ensure that aviation products and services meet stringent safety and performance standards. The Company and its customers are subject to these regulations. In addition, many of these customers impose their own compliance and quality requirements on the Company. The FAA prescribes standards and licensing requirements for aircraft components, licenses private repair stations and issues DAS approvals giving the holder the right to certify the design of aircraft modifications on behalf of the FAA. As a result of the FAA's oversight of the Company, the FAA can authorize or deny authorization of many of the services and products provided by the Company. Any FAA denial of such required authorizations would preclude the ability of the Company to provide the pertinent service or product. Should the Company fail to comply with the applicable FAA standards or regulations, the FAA would have available to it a wide-range of enforcement options. Such enforcement options include: (i) issuance of a warning letter or a letter of correction to the Company; (ii) initiation of a civil penalty action against the Company; (iii) suspension or emergency suspension of a Company certificate or approval; or (iv) the revocation or emergency revocation of a Company certificate or approval. The FAA also has the power to issue cease and desist orders and orders of compliance and to initiate court action for injunctive relief in support of its enforcement powers. In the event the FAA were to suspend or revoke a Company certificate or approval on an emergency basis, the Company would be obliged to cease immediately the manufacture of products and the delivery of services which require 38 such certificate or approval. In the event the FAA were to suspend or revoke a Company certificate or approval on other than an emergency basis, the Company would be permitted to continue the manufacture of products and the delivery of services which require such certificate or approval pending any available appeals. However, if the FAA were to prevail in any such appeal, upon the completion of the appeal process the Company would be obliged to cease the manufacture of such products and the delivery of such services. In addition, in the event the FAA were to determine that the Company's noncompliance with the applicable FAA standards or regulations created a safety hazard, the FAA could order that the pertinent component or aircraft immediately cease to be operated until appropriate corrective action is taken. This could require the grounding of aircraft and/or the removal of affected components from aircraft already returned to service. All aircraft operated by airlines in the United States must be of a type which has received an FAA type certificate ("TC"). A TC is issued by the FAA after the FAA determines that the aircraft type design meets the applicable FAA airworthiness standards. After a type design has been approved through the issuance of a TC by the FAA, a manufacturer with rights to the TC can apply for FAA approval to produce the aircraft. This approval is a "production certificate." Any major change in design of a type certificated aircraft which is not significant enough to require a new application for a TC under the FAA's rules must still be approved by the FAA. FAA approval of such a design change developed by an entity other than the TC holder is issued under an STC. There are two types of STCs: a "single-aircraft" STC, which may be applied to a single aircraft, and a "multi-aircraft" STC, which may be applied to all aircraft of a particular type design, for example, all Boeing 747-400s. As of September 30, 1996, the Company had obtained 83 STCs, most of which were obtained on behalf of its customers in connection with the Company's systems integration services, and substantially all of which are multi-aircraft STCs. The Company foresees the need to obtain additional STCs so that it can expand the services it provides and the customers it serves. Proposed aircraft modifications can be tested and approved and STCs issued directly by the FAA or on behalf of the FAA by holders of DAS approvals. DAS approvals are granted to domestic repair stations, air carriers, commercial operators of large aircraft, and manufacturers which demonstrate their ability to provide the personnel and follow specific procedures to ensure the issuance of STCs only for appropriate design modifications. Each DAS approval holder is specifically limited by the FAA as to the type of STCs which it can issue. The Company, which holds a DAS approval through Elsinore, can now issue many of the STCs it requires in connection with its systems integration operations. This has eliminated the need for the Company, in most instances, to apply to the FAA for STC approvals, enabling the Company to obtain STCs more quickly than in the past. After obtaining an STC, the Company must apply for a PMA or a PMA supplement to produce the modification installation kit covered by the STC. The Company has three PMAs and 64 supplements to its PMAs (as of September 30, 1996). Each initial PMA is, in general, an approval of the 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. The Company routinely applies for and receives PMA supplements. The Company also is required to have FAA authority to perform the installation of a modification kit. This authority is provided either by the Company's PMAs and supplements or its repair station certificates. In order for a company to perform certain repair, engineering, installation or other services on aircraft, its facility must be designated as an FAA-authorized repair station. The Company has three such repair stations. In addition to FAA approval of the design, production, and installation of modifications, the FAA certifies personnel. Selected Company personnel have been certified by the FAA to perform certain tasks related to the design, production, and performance of aircraft modifications. Such certified personnel include mechanics and repairmen. In addition, the FAA delegates some of its oversight responsibilities, such as testing and inspection responsibilities, to FAA-certified designees. The Company employs 39 FAA designees on a full-time basis to facilitate FAA approval and oversight of the Company's activities. In addition, the Company contracts with additional FAA designees as they are needed. Mil-specs are frequently used by both military and commercial customers in the aerospace industry to define and control characteristics of a product. Through the use of a government Qualified Parts List ("QPL") and Qualified Vendor's List ("QVL"), the customer is assured that a product or service has met all of the requirements set forth in the mil-specs. Parts listed with a QPL allow others to reliably design parts to interface with such parts as a result of the mil-spec standards used. The Company believes that it holds more QPLs for its contact product line than any other manufacturer. SALES AND MARKETING The Company's products are sold through a group of geographically assigned direct sales personnel and agents. Technical product sales support for these sales personnel is provided through product line managers and the Company's product engineering personnel. Customer service communication is provided by geographically assigned sales correspondents located in the Company's manufacturing facilities. The Company may also assign responsibility for marketing, sales and/or services for certain key customers to one of the Company's executives. The Company has five authorized distributors who purchase, stock and resell certain of the Company's product lines. The Company's systems integration services are sold by sales managers employed by the Company who are assigned to geographic territories. Because of the significant amount of technical engineering work required in the sales process, these sales managers are generally assisted by a support team which includes program management, installation and engineering personnel. The support team specializes in one of: (i) in-flight passenger telecommunications; (ii) in-flight entertainment; (iii) SATCOM and navigation; or (iv) safety systems. At such time as the Company obtains a contract for the system proposed by the sales manager, the support teams continue to manage the project throughout the entire integration process. CUSTOMERS In 1995, the Company sold its products and services to more than 500 customers. The Company's primary customers include aircraft and avionics OEMs, airlines, aircraft component manufacturers and distributors, and aircraft repair and modification companies. The Company's three largest customers are Boeing, AT&T and Matsushita, which accounted for approximately 9.0%, 21.6% and 7.4%, respectively, of the Company's consolidated revenues (pro forma for the ADS acquisition) for the fiscal year ended December 31, 1995 and 12.8%, 8.9% and 8.5%, respectively, of the Company's consolidated revenues (pro forma for the ADS acquisition) in the nine months ended September 30, 1996. In addition, a significant portion of the Company's sales of components are sold to Boeing indirectly through sales to suppliers of Boeing. The Company is the preferred systems integrator for IFT, and it expects that IFT will become a significant customer in 1997. The Company signed a contract with IFT in July 1996 and the Company expects to realize a substantial portion of the revenues from such contract in 1997. The Company will account for revenues generated under the IFT contract using the percentage of completion method of accounting. Pursuant to this contract, which provides for monthly progress payments, the Company will provide systems integration services for the IFT System on 21 Swissair wide-body aircraft. The Swissair contract is the first large-scale commercial application of the IFT System. Any delays in installation or problems in implementation of the IFT System may result in the deferral or a loss of potential revenues from IFT. Most of the Company's sales to Boeing are pursuant to contracts which may be terminated by Boeing at any time. One contract provides that: (i) if the Company reduces its prices or leadtimes of like quantity of comparable items to customers other than Boeing, then the Company must sell on the same 40 terms to Boeing; and (ii) if other Boeing suppliers offer to sell to Boeing products comparable to those of the Company at prices more than 5% lower than the prices specified in such contract, the Company must either similarly reduce its prices or permit Boeing to delete the affected products from the contract. Another contract provides that Boeing is not obligated to order any products covered by the agreement if: (i) Boeing's customers specify an alternate product; (ii) the product in Boeing's judgement is not technologically competitive at the time; (iii) Boeing changes the design of an aircraft such that the Company's products are no longer required for such aircraft; or (iv) Boeing reasonably determines that the Company cannot support Boeing's requirements for products in the amounts and within the delivery schedules Boeing requires. MANUFACTURING AND QUALITY CONTROL The Company manufactures contacts, connectors, harness assemblies, dichroic LCD devices and avionics support structures. Many of these products involve similar manufacturing processes which have become core competencies of the Company. The Company manufactures these products using process-specific equipment and procedures that have been custom-designed or fabricated to provide high-quality products at the lowest possible cost to the Company. The Company is vertically integrated from concept and design through final assembly, testing and certification for these production processes. The Company believes this vertical integration is critical to assuring product performance, customer service and competitive pricing. The Company has implemented programs to reduce costs, including overhead expenses, and maximize return on capital. In some cases these programs have involved the use of proprietary equipment or processes which have enabled the Company to reduce costs while maintaining high quality levels. For example, the Company uses a proprietary selective plating process which allows the Company to minimize the usage of gold when plating contacts. The Company has enhanced and expanded the use of this process, as well as other plating processes, which has enabled it to realize estimated cost savings, on a comparable basis, of approximately $.7 million in the first nine months of 1996 compared to the same period in 1995. Certain of the Company's customers have developed their own design, product performance, manufacturing process and quality system standards and require their suppliers, including the Company, to comply with such standards. As a result, the Company has developed and implemented comprehensive quality system policies and procedures which meet or exceed the requirements of its customers. Many of the Company's customers have recognized formally the effectiveness of the Company's quality programs by issuing quality approval letters and awarding quality compliance certificates. In addition, certain customers have authorized the Company's inspection personnel to act as the authorized quality representative of the customer. This authorization enables the Company to ship directly into the inventory stockrooms of these customers, eliminating the need for receiving inspection activities by these customers. The Company uses sophisticated equipment and procedures to ensure the quality of its products and to comply with mil-specs and FAA certification requirements. The Company performs a variety of testing procedures, including environmental testing under different temperature, humidity and altitude levels, shock and vibration testing and X-ray fluorescent measurement. These procedures, together with other customer approved techniques for document, process and quality control, are used throughout the Company's manufacturing facilities. RAW MATERIALS AND COMPONENT PARTS The components which the Company manufactures require the use of various raw materials including gold, aluminum, copper, rhodium, plating chemicals and plastics, the availability and prices of which may fluctuate. The price of raw materials represents a significant portion of the sales price of many of the Company's products. Although some of the Company's contracts have prices tied to the price of raw materials, increases in raw materials prices cannot always be recovered in product sale prices. The 41 Company also purchases a variety of manufactured component parts from various suppliers. Raw materials and component parts are generally available from multiple suppliers at competitive prices. However, any delay in the Company's ability to obtain necessary raw materials and component parts may affect its ability to meet customer production needs. PATENTS AND PROPRIETARY INFORMATION The Company has various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights which the Company believes, in the aggregate (but not individually) are important to its business. COMPETITION The Company competes with a number of established companies that have significantly greater financial, technological and marketing resources than the Company. The Company believes that its ability to compete depends on high product performance, short lead-time and timely delivery, competitive price, and superior customer service and support. The niche markets within the aircraft industry served by the Company are relatively fragmented with several competitors for each of the products and services provided by the Company. Due to the global nature of the commercial airline industry, competition in these categories comes from both U.S. and foreign companies. However, the Company knows of no single competitor that provides the same range of products and services as those provided by the Company. The Company's principal competitors in contacts and connectors are large and diversified corporations which produce a broad range of products. The Company's principal competitor in the contact market is Deutch Engineered Connecting Devices, a division of the Deutch Co. In the connector market, the Company's principal competitors include ITT Canon (a division of ITT Corporation), AMP and Radiall S.A. Several of these companies are also customers of the Company. The Company's principal competitors for avionics support structures include smaller companies such as Barry Controls, Inc., Electronic Cable Specialists ("ECS") and Vibrachoc, a subsidiary of Compagnie Generale d'Electricite. The main competitor for dichroic LCD devices is Cristalloid, Inc. Competitors which provide systems integration services include ECS, the engineering departments of certain airlines and numerous independent airframe maintenance and modification companies. BACKLOG As of September 30, 1996, the Company had outstanding purchase orders representing an aggregate invoice price of approximately $38.3 million, including $7.1 million for ADS, which was acquired on September 18, 1996. The Company expects to ship $16.7 million of the backlog by the end of 1996. As of September 30, 1995, the Company had outstanding purchase orders representing an aggregate invoice price of approximately $19.8 million, of which $8.4 million was shipped by the Company by the end of 1995. Orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of the Company's receipt of orders and the speed with which those orders are filled. Accordingly, the Company's backlog at September 30, 1996 is not necessarily indicative of actual shipments or sales for any future period, and period-to-period comparisons from 1995 to 1996 may not be meaningful. 42 EMPLOYEES As of December 31, 1996, the Company had 982 employees (including 136 temporary employees), of whom 96 were engineers (including 3 temporary employees), 24 were in sales, 769 were in manufacturing operations (including 130 temporary employees) and 93 were in finance and administration (including 3 temporary employees). None of the Company's employees is subject to a collective bargaining agreement, and the Company has not experienced any material business interruption as a result of labor disputes since it was formed. The Company believes that it has a good relationship with its employees. FACILITIES The Company leases all of its facilities with terms ranging from one to nine years as reflected in the following table.
APPROXIMATE SQUARE LEASE LOCATION DESCRIPTION FOOTAGE EXPIRATION - ------------------------------ -------------------------------------------- ------------- ---------- El Segundo, CA Manufacturing and engineering facility 81,300 2005 Santa Fe Springs, CA Manufacturing and engineering facility 52,000 2000 Hatfield, PA Manufacturing and engineering facility 27,500 1999 Lugano, Switzerland Manufacturing facility 21,000 2001 Irvine, CA Manufacturing facility 16,400 1999 Wiltshire, United Kingdom Manufacturing facility 5,700 1998 El Segundo, CA Executive offices 5,000 2004 Santa Barbara, CA Engineering facility 3,500 1997 Seattle, WA Engineering facility 3,200 1999 Phoenix, AZ Engineering facility 3,000 1997 Copley, OH Executive offices 2,200 1997 Santa Ana, CA Engineering facility 1,000 1999
The Company believes its properties are in good condition and are adequate to support its operations for the foreseeable future. ENVIRONMENTAL MATTERS The Company is subject to various federal, state, local, and foreign environmental requirements, including those relating to discharges to air, water, and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. In addition, certain environmental laws, such as CERCLA and similar state laws, impose strict, retroactive, and joint and several liability upon persons responsible for releases or potential releases of hazardous substances. The Company has sent waste to treatment, storage, or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings under state laws. The Company has received CERCLA requests for information or allegations of potential responsibility from the Environmental Protection Agency as to the Company's use of certain such sites. In addition, some of the Company's operations are located on properties which are contaminated to varying degrees. However, the Company has not incurred, nor does it expect to incur, significant costs to address such contamination because entities other than the Company have been held primarily responsible for such contamination, the levels of contamination are sufficiently low so as not to require remediation or the Company is indemnified against such costs. In most cases the Company does not believe that its liability for past waste disposal is material. However, in a limited number of cases the Company does not have sufficient information to assess its potential liability, if any. It is possible, given the retroactive nature of CERCLA 43 liability, that the Company will from time to time receive additional notices of potential liability, relating to current or former activities. The Company has been and is in substantial compliance with environmental requirements and believes it has no liabilities under environmental requirements, except those which would not be expected to have a material adverse effect on the Company's business, results of operations, or financial condition. However, some risk of environmental liability is inherent in the nature of the Company's business and the Company might in the future incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental requirements. See "Risk Factors-- Environmental Regulation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Environmental Matters" and "Business--Legal Proceedings." LEGAL PROCEEDINGS The Company's manufacturing facility in El Segundo, California, has received several notices of violation ("NOV") related to its wastewater discharge permit. The Company has taken various corrective measures. However, the Company continues to experience difficulty in meeting the wastewater flow limitations contained in its discharge permit and is evaluating additional measures, including seeking modification to its permit. If the Company is not able to resolve these issues, it may be required to install new treatment equipment. However, the cost for such installation is not expected to be material, and the Company does not believe that the NOVs will result in any material sanctions. See "Risk Factors-- Environmental Regulation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Environmental Matters" and "Business--Environmental Matters." 44 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information regarding the directors and executive officers of the Company as of December 31, 1996:
NAME AGE POSITION - --------------------------------- --- ---------------------------------------------------------- R. Jack DeCrane 50 Chairman of the Board and Chief Executive Officer R. G. MacDonald 66 Vice Chairman of the Board Robert A. Rankin 44 Chief Financial Officer and Secretary Roger L. Keller 52 Group Vice President of Systems Charles H. Becker 50 Group Vice President of Components James R. Bergman (a) 54 Director Paul H. Cascio (b) 35 Director Jonathan A. Sweemer (a)(b) 41 Director
- ------------------------ (a) Member of the Compensation Committee. (b) Member of the Audit Committee. The Company is currently evaluating other director candidates and anticipates that two additional independent, non-management directors will be added to the Board upon the closing of the Offering or as soon thereafter as practicable. Upon completion of the Offering, the Company's independent, non- management directors will continue to represent a majority on each of the Company's Audit Committee and Compensation Committee. The Company's Board is divided into three classes. Directors of each class will be elected at the annual meeting of stockholders of the Company (the "Annual Meeting") held in the year in which the term of such class expires and will serve thereafter for three years. Mr. MacDonald serves as a class I director for a term expiring as of the Annual Meeting in 1998. Messrs. Cascio and Bergman serve as class II directors for a term expiring as of the Annual Meeting in 1999. Messrs. DeCrane and Sweemer serve as class III directors for a term expiring as of the Annual Meeting in 2000. R. Jack DeCrane is the founder of the Company and has been Chairman of the Board of Directors of the Company since it was founded in December 1989. Mr. DeCrane served as President of the Company, which office then included the duties of chief executive officer, until April 1993 when he was elected to the newly-created office of Chief Executive Officer. Prior to founding the Company, Mr. DeCrane held various positions at the aerospace division of B.F. Goodrich. Mr. DeCrane was a Group Vice President at the aerospace division of B.F. Goodrich with management responsibility for three business units from 1986 to 1989. Mr. DeCrane is his own appointee to the Board under the terms of an agreement between the Company and certain of its shareholders and lenders. See "Certain Transactions--Shareholders Agreement." R. G. MacDonald has been Vice Chairman of the Company since December 1996. Mr. MacDonald has been a member of the Board since December 1994, and was President of the Company from April 1993 until December 1996. The office of President of the Company included the duties of chief operating officer. Mr. MacDonald was a consultant to the Company from February 1993 to April 1993. Prior to joining the Company, he served as President and Chief Executive Officer of MDB Systems, Inc., a manufacturer of ruggedized computer disk systems, from 1990 to 1993. 45 Robert A. Rankin has been Chief Financial Officer and Secretary of the Company since November 1993. Mr. Rankin joined the Company in 1992 as Senior Vice President of Tri-Star, which office then included the duties of chief financial officer of the Company. Prior to joining the Company, he was Vice President of Finance for the Chandler Evans Control Systems subsidiary of Coltec Industries, Inc., an aerospace company, from 1990 to 1992. He was employed by the aerospace division of B.F. Goodrich from 1977 to 1989 in various capacities, the most recent of which was as Controller of the aircraft wheel and brake business unit of B.F. Goodrich. Roger L. Keller has been Group Vice President of Systems of the Company since December 1996. Mr. Keller was President of Hollingsead from December 1995 until December 1996, and was employed by the Company as Vice President of Engineering, Sales and Program Management from May 1994 through November 1995. Prior to joining the Company, he was Vice President of Engineering for Active Noise and Vibration Technologies, Inc. from 1992 to 1994, and Vice President of Sales, Marketing and Program Management for the Airtransport Services division of Honeywell from 1986 to 1992. Charles H. Becker has been Group Vice President of Components of the Company since December 1996. Mr. Becker was President of Tri-Star, from December 1994 to December 1996. Prior to joining the Company, he was President of the Interconnect Systems Division of Microdot, Inc. from 1984 to 1994. James R. Bergman has been a member of the Board since October 1991. He is a founder and, since 1974, has been a general partner of DSV Associates, DSV Partners III and DSV Partners IV. Mr. Bergman is DSV's appointee to the Board under the terms of an agreement between the Company and certain of its shareholders and lenders. See "Certain Transactions--Shareholders Agreement." In August 1996, Mr. Bergman became a general partner of Brantley Venture Partners III, L.P. He is also a director of Maxim Integrated Products, Inc. and Quad Systems Corporation. Paul H. Cascio has been a member of the Board since September 1996. He is a general partner of Brantley Venture Partners. Mr. Cascio also serves as Vice President and Secretary of Brantley Capital Corporation. Mr. Cascio is Brantley's appointee to the Board under the terms of an agreement between the Company and certain of its shareholders and lenders. See "Certain Transactions--Shareholders Agreement." Prior to becoming a general partner of Brantley Venture Partners in May 1996, Mr. Cascio was a managing director and head of the Industrial Manufacturing and Services Group in the corporate finance department at Dean Witter Reynolds Inc. Jonathan A. Sweemer has been a member of the Board since February 1996. He has been a member of Nassau Capital Partners, L.P. since January 1995. From May 1992 to December 1994, Mr. Sweemer was a Vice President for Princeton University Investment Co. Mr. Sweemer is Nassau's appointee to the Board under the terms of an agreement between the Company and certain of its shareholders and lenders. See "Certain Transactions--Shareholders Agreement." 46 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table describes all annual compensation awarded to, earned by or paid to the Company's Chief Executive Officer and the four-most highly compensated executive officers other than the Chief Executive Officer (collectively the "Named Executive Officers") for the fiscal year ended December 31, 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM -------------------------------------------- COMPENSATION OTHER ANNUAL --------------- ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) OPTIONS (2) COMPENSATION - ----------------------------- ----------- ----------- ------------------ --------------- -------------- R. Jack DeCrane $ 206,600 $ 146,000 $ 7,813 34,028 $ -- Chief Executive Officer R. G. MacDonald 177,437 82,000 3,960 -- -- President and Vice Chairman of the Board (3) Robert A. Rankin 139,375 65,000 1,595 19,850 -- Chief Financial Officer and Secretary Roger L. Keller 150,000 -- 2,083 19,850 -- President of Hollingsead and Group Vice President of Systems (4) Charles H. Becker 148,750 65,000 1,899 19,850 30,586(6) President of Tri-Star and Group Vice President of Components (5)
- ------------------------ (1) Amounts paid by the Company for premiums on life and long-term disability insurance for the benefit of the Named Executive Officer. (2) Number of shares of Common Stock issuable upon exercise of options granted during the last fiscal year. (3) Mr. MacDonald served as President of the Company through December 1996. Mr. MacDonald became Vice Chairman of the Board in December 1996. (4) Mr. Keller served as President of Hollingsead through December 1996. Mr. Keller became Group Vice President of Systems in December 1996. (5) Mr. Becker served as President of Tri-Star through December 1996. Mr. Becker became Group Vice President of Components in December 1996. (6) Relocation costs. 47 STOCK OPTIONS GRANTED IN LAST FISCAL YEAR The following table sets forth individual grants of stock options granted to the Named Executive Officers during the fiscal year ended December 31, 1996. OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF % OF TOTAL STOCK PRICE SECURITIES OPTIONS/SARS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10% - ----------------------------- -------------- ----------------- ------------- ---------- --------- ----------- R. Jack DeCrane.............. 34,028 23.1% $ .14 2006 $ 78,297 $ 198,421 Robert A. Rankin............. 19,850 13.5% 2.89 2006 36,160 91,640 Roger L. Keller.............. 19,850 13.5% 2.89 2006 36,160 91,640 Charles H. Becker............ 19,850 13.5% 2.89 2006 36,160 91,640
STOCK OPTIONS EXERCISED DURING FISCAL YEAR AND YEAR END VALUES OF UNEXERCISED OPTIONS The following table sets forth information about the stock options exercised by the Named Executive Officers of the Company during the fiscal year ended December 31, 1996. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/ SARS ACQUIRED OPTIONS/SARS AT FY-END AT FY-END(1) ON VALUE -------------------------- -------------------------- NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---------------------------------- ---------- --------- -------------------------- -------------------------- R. Jack DeCrane................... -- -- 63,803/62,385 $ / R. G. MacDonald................... -- -- 34,028/22,686 / Robert A. Rankin.................. -- -- 12,832/21,197 / Roger L. Keller................... -- -- 5,671/28,357 / Charles H. Becker................. -- -- 8,507/25,521 /
- ------------------------ (1) Assuming an initial public offering price of $ per share as of December 31, 1996, the measuring date. EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS R. Jack DeCrane and the Company have entered into an employment agreement pursuant to which Mr. DeCrane is to serve as Chief Executive Officer for a term of four years, effective September 1, 1994. The agreement requires Mr. DeCrane to devote his full business time to the Company and contains a covenant not to compete with the Company for a period of 12 months following termination of the agreement. The agreement provides for various benefits including (i) an annual salary of $180,000, which is subject to annual review and increase, but not decrease; (ii) an annual bonus ranging from 30% to 70% of Mr. DeCrane's annual base salary depending on the level of the Company's achievement of certain performance goals; and (iii) vested stock options to purchase 77,982 shares of Common Stock at an exercise price of $.529 per share. Additionally, Mr. DeCrane is also entitled to life insurance (in an amount at least equal to $1,000,000), and health care benefits generally provided by the Company to other senior executives. The agreement also provides for various payments to Mr. DeCrane or his beneficiaries in the event of his death, disability, or termination without cause. In the event of his death, Mr. DeCrane's beneficiaries would be entitled to: (i) a payment equal to Mr. DeCrane's then current salary for one year plus his remaining bonus through year-end; and (ii) continuation of certain insurance benefits for one year. Upon termination due to disability, Mr. DeCrane would be entitled to: (i) receive the 48 sum of his then current base salary for one year plus his bonus through year end; and (ii) continuation of certain health benefits for one year. In the event of a termination without cause by the Company or Mr. DeCrane's resignation due to a material breach of the agreement by the Company or the Company's request that he resign or retire, Mr. DeCrane would be entitled to: (i) his then current base salary for one year and his remaining bonus through the end of the year of termination plus an amount equal to the amount earned in the immediately preceding year; (ii) continuation of certain health benefits for a one year period; and (iii) reimbursement of certain relocation and outplacement expenses. R. G. MacDonald and the Company entered into a letter agreement, dated June 28, 1993, pursuant to which Mr. MacDonald is to receive for an unspecified term: (i) an annual base salary of $150,000; (ii) an annual bonus ranging from 20% to 50% of his annual base salary depending on the Company's level of achievement of certain performance goals; and (iii) the Company's standard benefit package with the addition of an executive term life insurance policy in the amount of $200,000. Under the agreement, Mr. MacDonald received options to purchase 56,714 shares of the Company's Common Stock at an exercise price of $.53 per share. Charles H. Becker and Tri-Star entered into a letter agreement, dated November 28, 1994, pursuant to which Mr. Becker is to receive for an unspecified term: (i) an annual base salary of $140,000; (ii) an annual bonus ranging from 10% to 40% of his annual base salary depending on Tri-Star's level of achievement of certain performance goals; and (iii) other benefits available under the Company's executive benefits program. Under the agreement, Mr. Becker received options to purchase 14,179 shares of the Company's Common Stock at an exercise price of $.53 per share. SHARE INCENTIVE PLAN Under the Share Incentive Plan, the Company may grant to its eligible employees: (i) options ("Options") to purchase shares of Common Stock; (ii) shares of Common Stock that vest upon the achievement of specified service or performance conditions within a specified period of time (the "Restricted Shares"); and (iii) options to receive payments based on the appreciation of Common Stock ("SARs"). Options, Restricted Shares and SARs are collectively referred to as "Grants." Under the Share Incentive Plan, the Company may grant Options that qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or Options that do not so qualify. The Share Incentive Plan is to be administered by a committee selected by the Company's Board and composed of at least two members of the Board (the "Administrator"). The current members of the Administrator are Messrs. Bergman and Sweemer. Restricted Shares may be granted to key employees of the Company at the sole discretion of the Administrator. SARs may be specifically granted upon the terms and conditions specified by the Administrator. Grants are to be made to key employees of the Company designated by the Administrator at its sole discretion. The Company has reserved 525,000 shares of Common Stock for issuance under the Share Incentive Plan. The Share Incentive Plan terminates on February 1, 2003, and thereafter no Grants may be made. The exercise price of any Option may not be less than 100% (or 110% in the case of an Option granted to a person owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company) of the fair market value of the Common Stock at the time of the grant of the Option. No Option may be exercised after the expiration of ten years from the date of grant of such Option. No Option may be sold, pledged, assigned or transferred in any manner otherwise than by will or the laws of descent or distribution. The purchase price of any shares of Common Stock purchased under an Option must be paid in full at the time of the exercise of an Option in cash, by check or, if permitted by the Administrator, by shares of Common Stock 49 having a fair market value on the date of the exercise equal to the purchase price or a combination thereof. In the event that a holder of a Grant (a "Grantee") ceases to be employed by the Company for any reason other than death, retirement or disability or such employee is terminated without cause, such Grants shall terminate upon the termination of his employment, unless extended by the Administrator. In the event of termination of employment due to death, retirement or disability of a Grantee or in the event such termination is without cause, the Administrator may allow the Grantee (or his estate) to exercise Options and SARs (to the extent exercisable on the date of termination of employment) at any time within one year after the date of such termination of employment. Restricted Shares held by a Grantee will vest upon the Grantee's death and all restrictions will thereupon lapse. 1996 INCENTIVE PLAN In 1996 the Company introduced an incentive plan (the "1996 Incentive Plan") for its management personnel tied to the Company's and each operating unit's annual budget as approved each year by the Compensation Committee of the Board. The 1996 Incentive Plan matrix provides for an annual bonus of up to 70% of the employee's base salary if the Company or its relevant operating unit achieves 110% of budget. Fifty percent of the bonus is payable solely based on performance of the Company or the relevant operating unit and the remainder is payable upon the achievement by the employee of his or her individual objectives in the discretion of the Chief Executive Officer of the Company or the President of the relevant operating unit. 401(K) RETIREMENT PLANS Effective April 1992, the Company adopted the Lincoln National Life Insurance Company Non-Standardized 401(k) Salary Reduction Plan and Trust Prototype Plan (the "401(k)"). The 401(k) allows employees as participants to defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred earnings, plus interest, as a retirement fund. There may be employer matching contributions made under this 401(k) which vest according to a specified schedule, within six years of service. The full amount vested in a participant's account will be distributed to a participant following termination of employment, normal retirement or in the event of disability or death. DIRECTORS' COMPENSATION The directors of the Company do not receive annual fees or fees for attending meetings of the Board of Directors or committees thereof. However, they are reimbursed for out-of-pocket expenses. LIMITATION ON DIRECTOR LIABILITY AND INDEMNIFICATION Pursuant to the Certificate, and as permitted by Delaware Law, directors of the Company are not liable to the Company or its stockholders for monetary damages for breach of fiduciary duty, except for liability in connection with a breach of duty of loyalty, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, for dividend payments or stock repurchases unlawful under Delaware Law or any transaction in which a director has derived an improper personal benefit. 50 PRINCIPAL STOCKHOLDERS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following chart provides information as to the beneficial ownership of Common Stock as of December 31, 1996, as adjusted to give effect to the Recapitalization (See "Description of Capital Stock--The Recapitalization"), by: (i) each director and Named Executive Officer; (ii) directors and executive officers of the Company as a group; and (iii) each person known to the Company to be the beneficial owner of 5% or more of Common Stock.
PERCENTAGE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT BEFORE OFFERING - ------------------------------------------------------------------- ---------------- ----------------------- Nassau Capital Partners L.P........................................ 741,645(1) 29.3% 22 Chambers Street Princeton, NJ 08542 Jonathan A. Sweemer................................................ 741,645(2) 29.3% 22 Chambers Street Princeton, NJ 08542 DSV Partners, IV................................................... 495,190 19.6% 1920 Main St. Suite 820 Irvine, CA 92614 James R. Bergman................................................... 495,190(3) 19.6% 1920 Main St. Suite 820 Irvine, CA 92614 Brantley Venture Partners II, L.P.................................. 495,188 19.6% 20600 Chagrin Blvd., Suite 1150 Cleveland, Ohio 44122 Paul H. Cascio..................................................... 495,188(4) 19.6% 20600 Chagrin Blvd. Suite 1150 Cleveland, OH 44122 Electra Investment Trust P.L.C..................................... 456,531(5) 18.0% 65 Kings Way London, England WC2B6QT R. Jack DeCrane.................................................... 130,506(6) 5.0% 155 Montrose West Avenue Suite 210 Copley, Ohio 44321 R. G. MacDonald.................................................... 42,536(7) 1.7% 2201 Rosecrans Avenue El Segundo, California 90245 Robert A. Rankin................................................... 17,085(8) * 2201 Rosecrans Avenue El Segundo, California 90245 Charles H. Becker.................................................. 14,179(9) * 2201 Rosecrans Avenue El Segundo, California 90245 Roger L. Keller.................................................... 7,373(10) * 2201 Rosecrans Avenue El Segundo, California 90245 All directors and executive officers as a group (eight persons).... 1,943,702(11) 73.1% PERCENTAGE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER AFTER OFFERING - ------------------------------------------------------------------- ----------------------- Nassau Capital Partners L.P........................................ 22 Chambers Street Princeton, NJ 08542 Jonathan A. Sweemer................................................ 22 Chambers Street Princeton, NJ 08542 DSV Partners, IV................................................... 1920 Main St. Suite 820 Irvine, CA 92614 James R. Bergman................................................... 1920 Main St. Suite 820 Irvine, CA 92614 Brantley Venture Partners II, L.P.................................. 20600 Chagrin Blvd., Suite 1150 Cleveland, Ohio 44122 Paul H. Cascio..................................................... 20600 Chagrin Blvd. Suite 1150 Cleveland, OH 44122 Electra Investment Trust P.L.C..................................... 65 Kings Way London, England WC2B6QT R. Jack DeCrane.................................................... 155 Montrose West Avenue Suite 210 Copley, Ohio 44321 R. G. MacDonald.................................................... 2201 Rosecrans Avenue El Segundo, California 90245 Robert A. Rankin................................................... 2201 Rosecrans Avenue El Segundo, California 90245 Charles H. Becker.................................................. 2201 Rosecrans Avenue El Segundo, California 90245 Roger L. Keller.................................................... 2201 Rosecrans Avenue El Segundo, California 90245 All directors and executive officers as a group (eight persons)....
- -------------------------- * Less than 1% (1) Includes 4,638 shares held by NAS Partners I L.L.C., an affiliate of Nassau Capital Partners, L.P. Excludes the shares underlying the Nassau Warrants. (2) Represents 737,007 shares held by Nassau Capital Partners, L.P. and 4,638 shares held by NAS Partners I L.L.C., affiliates of Mr. Sweemer. (3) Represents shares held by DSV of which Mr. Bergman is a general partner. (4) Represents shares held by Brantley of which Mr. Cascio is a general partner of the general partner. (5) Includes 46,636 shares held by Electra Associates, Inc., an affiliate of Electra Investment Trust P.L.C. (6) Includes 63,803 shares which may be acquired upon the exercise of stock options which are exercisable or will be exercisable prior to 60 days from December 31, 1996. (7) Includes 34,028 shares which may be acquired upon the exercise of stock options which are exercisable or will be exercisable prior to 60 days from December 31, 1996. (8) Includes 12,832 shares which may be acquired upon the exercise of stock options which are exercisable or will be exercisable prior to 60 days from December 31, 1996. (9) Includes 8,507 shares which may be acquired upon the exercise of stock options which are exercisable or will be exercisable prior to 60 days from December 31, 1996. (10) Includes 7,373 shares which may be acquired upon the exercise of stock options which are exercisable or will be exercisable prior to 60 days from December 31, 1996. (11) Includes 126,543 shares which may be acquired upon the exercise of stock options which are exercisable or will be exercisable prior to 60 days from December 31, 1996. 51 CERTAIN TRANSACTIONS SHAREHOLDERS AGREEMENT Pursuant to the Shareholders Agreement dated (the "Shareholders Agreement") among the Company, Nassau, Electra, Brantley, DSV and certain other parties and subject to election by the Company's stockholders, Nassau, Brantley and DSV each have the right to nominate a representative to serve as a director so long as the relevant stockholder owns at least 5% of the Common Stock (including Common Stock which may be acquired upon exercise of warrants). Following completion of the Offering, Nassau, Brantley and DSV will beneficially own %, %, and %, respectively, of the issued and outstanding Common Stock. The ownership percentage for Nassau includes the 152,915 shares which may be acquired upon exercise of the Nassau Warrants. The Shareholders Agreement also provides that Mr. DeCrane may nominate a director for election by the Company's stockholders for so long as he is the Chief Executive Officer of the Company. ELECTRA SECURITIES PURCHASE AGREEMENT Pursuant to a Securities Purchase Agreement dated November 2, 1994 (the "Electra Securities Purchase Agreement") between the Company and Electra, the Company issued the Senior Subordinated Notes in the principal amount of $7.0 million and warrants to purchase 266,990 shares of Common Stock for $.035 per share. Such warrants expire in December 31, 2004 and contain certain rights to require the Company to repurchase them. Such warrants will be exercised in connection with the Recapitalization. See "Description of Capital Stock--The Recapitalization." In addition, the Electra Securities Purchase Agreement provided that Electra was to receive an advisory fee of $72,000 per annum. In February 1996 the Electra Securities Purchase Agreement was amended to, among other things, waive certain covenants relating to the Senior Subordinated Notes, amend certain of Electra's rights to require the Company to repurchase the warrants held by it and increase Electra's advisory fee to $25,000 each calendar quarter. SALES OF SECURITIES Pursuant to a Securities Purchase Agreement and related Warrant Agreement dated September 18, 1996 among the Company, Nassau and Electra, the Company issued to Nassau and Electra the Convertible Notes and warrants to purchase an aggregate of 49,079 shares of Common Stock (the "Note Warrants") for an aggregate purchase price of $3.0 million. The Company also sold to Nassau and Electra an aggregate of 750,000 shares of Series E Preferred Stock and issued warrants (the "Preferred Stock Warrants") to purchase an additional 49,079 shares of Common Stock for a purchase price of $3.0 million. Each share of Series E Preferred Stock has a liquidation preference of $4.00, provides for annual dividends of $.40 and is convertible into approximately .28357 shares of Common Stock. The Note Warrants and Preferred Stock Warrants are exercisable at $.035 per share and contain certain rights to require the Company to repurchase such warrants. All accrued but unpaid dividends will be cancelled and eliminated if the Offering is consummated by May 5, 1997. The Note Warrants and Preferred Stock Warrants expire on December 31, 2006. The Series E Preferred Stock will be exchanged for 212,678 shares of Common Stock in the Recapitalization. The Preferred Stock Warrants will be exercised in connection with the Recapitalization and the Note Warrants will be terminated in accordance with their terms. See "Description of Capital Stock--The Recapitalization." Pursuant to a Securities Purchase Agreement and related Warrant Agreements dated February 20, 1996 between the Company and Nassau, the Company issued to Nassau an aggregate of 2,000,000 shares of Series D Preferred Stock and the Nassau Warrants for an aggregate purchase price of $6.5 million. Each share of Series D Preferred Stock has a liquidation preference of $3.25, provides for annual dividends of $.325 and is convertible into approximately .28357 shares of Common Stock. All accrued but unpaid dividends will be cancelled and eliminated if the Offering is consummated by May 5, 52 1997. The Series D Preferred Stock will be exchanged for 567,140 shares of Common Stock in the Recapitalization. See "Description of Capital Stock--The Recapitalization." See "Description of Capital Stock--Warrants" for a description of the Nassau Warrants. Pursuant to a Securities Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles H. Becker, Robert A. Rankin and another officer of the Company, the Company sold an aggregate of 75,000 shares of Series C Preferred Stock for a purchase price of $1.50 per share. Each share of Series C Preferred Stock has a liquidation preference of $1.50, provides for annual dividends of $.15 and is convertible into approximately .28357 shares of Common Stock. All accrued but unpaid dividends will be cancelled and eliminated if the Offering is consummated by May 5, 1997. Such Series C Preferred Stock will be exchanged for 21,268 shares of Common Stock in the Recapitalization. See "Description of Capital Stock--The Recapitalization." Pursuant to a Share Purchase Agreement dated November 2, 1994 among the Company and Electra, DSV, Brantley and certain other parties the Company issued an aggregate of 271,471 shares of Series C Preferred Stock for $1.50 per share. The Series C Preferred Stock will be exchanged for 76,981 shares of Common Stock in the Recapitalization. See "Description of Capital Stock--The Recapitalization." DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 35 million shares of Common Stock, par value $.01 per share, and 10 million shares of preferred stock, par value $.01 per share. THE RECAPITALIZATION On January , 1997, the Company, formerly an Ohio corporation, was incorporated in the State of Delaware. Each outstanding share of common stock and preferred stock, as well as all warrants. Grants and options were exchanged for substantially similar securities of the Delaware corporation. As a condition to the consummation of the Offering, the Company's existing shareholders have approved a recapitalization (the "Recapitalization") of the Company which includes: (i) a change in the authorized capital of the Company to consist of 35,000,000 shares of Common Stock and 10,000,000 shares of undesignated Preferred Stock (the "Undesignated Preferred Stock"); (ii) the conversion of 6,847,705 shares of Series A, B, C, D, and E Convertible Preferred Stock (the "Existing Preferred Stock") into 1,941,804 shares of Common Stock; (iii) the exercise of all warrants (the cancellation of which is not triggered by the Offering), other than the Nassau Warrants, for 433,570 shares of Common Stock; and (iv) a 3.53-for-1 reverse stock split. In connection with the Recapitalization, certain of the Company's existing shareholders and the holders of the warrants (other than Nassau) have agreed, effective immediately prior to the effectiveness of the Offering, to waive a number of rights under the agreements by which such shareholders and holders of the warrants acquired such rights from the Company. The effect of such waivers would be to release the Company from certain dividend payment requirements, voting requirements and certain other rights granted to such shareholders and such holders of the warrants pursuant to their respective agreements with the Company, as well as eliminating certain negative and affirmative covenants contained therein. In connection with the Recapitalization, the Company entered into the Registration Rights Agreement with such shareholders and warrant holders providing such shareholders and warrant holders with certain demand and piggyback registration rights with respect to the Common Stock. See "Description of Capital Stock--Registration Rights." COMMON STOCK As of December 31, 1996, giving effect to the Recapitalization, there were 2,460,967 shares of Common Stock outstanding and held of record by 15 stockholders. An additional 578,836 shares were reserved for issuance upon exercise of all outstanding options and warrants. Each holder of Common 53 Stock is entitled to one vote for each share held and does not have cumulative voting rights. The holders of the Nassau Warrants are entitled to vote together with the holders of Common Stock. See "Description of Capital Stock--Warrants." The holders of the Common Stock and the Nassau Warrants are entitled to elect all of the directors, subject to the rights of certain stockholders and lenders under the Shareholders Agreement to nominate candidates and subject to relevant rights (if any) of the holders of any outstanding Undesignated Preferred Stock. The Common Stock is not convertible into any other security. See "Certain Transactions--Shareholders Agreement." Subject to preferences that may be applicable to any then outstanding Preferred Stock and to the restrictions on payments of dividends imposed by the Company's debt agreements, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock would be entitled to share in the Company's assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted the holders of any then outstanding shares of preferred stock. The Common Stock has no preemptive or other subscription rights. The outstanding shares of Common Stock are fully paid and nonassessable. PREFERRED STOCK The Company is authorized to issue up to 10 million shares of Undesignated Preferred Stock, none of which was issued as of December 31, 1996. The Board, without further action by the holders of Common Stock, may issue shares of Undesignated Preferred Stock in one or more series and may fix or alter the rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and the description and number of shares constituting any wholly unissued series of Undesignated Preferred Stock. The Board, without further approval of the holders of Common Stock, may issue shares of Undesignated Preferred Stock with rights that could adversely affect the rights of the holders of Common Stock. The issuance of shares of Undesignated Preferred Stock under certain circumstances could have the effect of delaying or preventing a change of control of the Company or other corporate action. REGISTRATION RIGHTS Pursuant to the Registration Rights Agreement certain stockholders may, following the expiration of a 180-day lock-up period, require the Company to use its best efforts to register such holders' Company securities (including the Common Stock and the Nassau Warrants) under the Securities Act, in each case pursuant to the procedures and subject to restrictions specified in the Registration Rights Agreement. Each party to the Registration Rights Agreement may require the Company to file one registration statement to register securities owned by it for a four-year period (subject to extension under certain limited circumstances). In general, the Company is not required to effect the registrations described above more than once in any 12 month period or, if the Company intends in good faith to file a registration statement pertaining to an underwritten public offering by the Company, within 90 days. Also, the Company is not obligated to file more than four registration statements, provided that if the Company effects a registration at the request of a stockholder, no further demand by any other party to such agreement may be made for a period of at least nine months. In addition to the registration rights described above, following the expiration of the 180-day lock-up period, each holder which is a party to the Registration Rights Agreement may cause the Company to use its best efforts to include such holder's Common Stock in any of the Company's registered offerings ("piggyback offerings") of its Common Stock (other than under Forms S-4 and S-8 of the Securities Act, 54 or under other forms not available for registering sales to the public) (subject to reduction to the extent that the managing underwriter, if any, is of the opinion that such inclusion would adversely affect the marketing of the securities to be sold therein). The Registration Rights Agreement provides that the Company is to bear the expenses of registrations described above, other than expenses consisting of underwriting discounts and commissions applicable to securities sold by holders. The Registration Rights Agreement also restricts the transfer of certain shares of Common Stock held by the stockholders party to such agreement prior to the registration and sale (or other registered disposition) of such Common Stock under the Securities Act. WARRANTS Pursuant to Warrant Agreements dated February 20, 1996 between the Company and Nassau the Company issued the Nassau Warrants. The Nassau Warrants entitle the holders to purchase for $.035 per share (i) up to 55,605 shares of Common Stock commencing December 31, 1997, (ii) an additional 55,605 shares of Common Stock commencing December 31, 1998, and (iii) an additional 83,408 shares of Common Stock commencing December 31, 1999; provided, however, that if the Company consummates a registered underwritten public offering pursuant to which the fully diluted common equity of the Company has a value in excess of certain specified amounts (the "Minimum Equity Targets"), the Nassau Warrants which are to become exercisable after the consummation of such public offering will terminate. The Minimum Equity Target for offerings consummated prior to December 31, 1997 is $ . The Minimum Equity Target for offerings consummated on or after December 31, 1997 and prior to December 31, 1998 is $ . The Minimum Equity Target for offerings consummated on or after December 31, 1998 is $ . There can be no assurance that the Company will be able to consummate a registered underwritten public offering meeting the Minimum Equity Targets. The Nassau Warrants expire on December 31, 2003. Holders of the Nassau Warrants are entitled to vote with the holders of Common Stock the number of votes equal to the number of shares of Common Stock which may be acquired upon exercise of the Nassau Warrants. The Nassau Warrants further provide that commencing on December 31, 2000 the holders may require the Company to repurchase the Nassau Warrants for a per share amount equal to (i) the greater of (a) the fair market value of the common equity of the Company on a fully diluted basis, (b) the net book value of the Company, and (c) an amount equal to 6.0 times the Company's EBITDA, less outstanding indebtedness of the Company, and plus cash and cash equivalents of the Company, in each case divided by (ii) the number of shares of Common Stock then outstanding on a fully diluted basis. If the Company does not have a legal source of funds to repurchase the Nassau Warrants the Company would be required to deliver a promissory note for the purchase price. Such promissory note will bear interest at a rate of 14.0% per annum. If the Company were to be required to repurchase the Nassau Warrants the Company is unable to predict the effect of such a repurchase on its liquidity. Also, there can be no assurance that the terms of its existing debt instruments would permit the Company to repurchase the Nassau Warrants or issue any promissory note therefor. See "Risk Factors--Repurchase of Warrants." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is State Street Bank and Trust Company. CERTAIN CERTIFICATE AND BYLAW PROVISIONS AND DELAWARE GENERAL CORPORATION LAW SECTION 203 The provisions of the Company's Certificate and the Bylaws and the provisions of Delaware Law summarized in the succeeding paragraphs may be deemed to have anti-takeover effects and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider to be in such stockholder's best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. 55 CLASSIFIED BOARD. The Certificate provides that the Board will be divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the Board will be elected each year. Currently, the size of the Board is fixed at five members, who are divided into three classes serving staggered three-year terms. However, the Company is presently evaluating other director candidates and anticipates that two additional independent, non-management directors will be added to the Board upon the closing of the Offering or as soon thereafter as practicable. The classified board provisions could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and the stockholders. The Certificate also provides that a director may not be removed from office unless for cause and the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of capital stock (including any warrants with voting rights) entitled to vote. MERGERS AND SALES OF ASSETS. The Certificate provides that except as provided in Section 203 of the General Corporation Law of the State of Delaware (the "GCLSD") any merger or sale of substantially all of the assets of the Company which has not been approved by at least two-thirds of the Board must be approved by the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of capital stock (including any warrants with voting rights) entitled to vote. Such provision may have the effect of preventing a merger or sale of substantially all the Company's assets that a stockholder might consider to be in such stockholders best interest, including those which might result in a premium over the market price for the shares held by stockholders. LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective upon consummation of the Offering the Certificate will prohibit stockholder action by written consent in lieu of a meeting, and will provide that stockholder action can be taken only at an annual or special meeting of stockholders. Such provision may have the effect of delaying consideration of a stockholder proposal until the next annual meeting, unless a special meeting is called by the Board, the Chairman of the Board, the Chief Executive Officer or President of the Company. ADVANCED NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. The Bylaws establish certain advance notice procedures with regard to stockholder proposals and the nomination, other than by the direction of the Board or a committee thereof, of candidates for election as directors. The Company may reject a stockholder proposal or nomination that is not made in accordance with such procedures. AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS. The Certificate provides that the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of capital stock of the Company (including any warrants with voting rights) then entitled to vote on the matter is required to amend certain provisions of the Certificate, including those provisions relating to the classification of the Board of Directors; the filling of vacancies on the Board; removal of directors; the calling of special meetings of stockholders; the prohibition of stockholder action without a meeting; indemnification of directors, officers and others; the limitation on liability of directors; the approval of any merger or sale of substantially all of the assets of the Company which has not been approved by at least two-thirds of the Board; the Amendment of the Bylaws; and the supermajority voting requirements in the Certificate. The Certificate further provides that the Bylaws may be amended by the Board, except with respect to the authorized number of directors, or by an affirmative vote of the holders of not less than 66 2/3% of the total voting power of all outstanding shares of capital stock of the Company (including any warrants with voting rights) then entitled to vote on the matter. These voting requirements will have the effect of making more difficult any amendment by stockholders, even if a majority of the Company's stockholders believe that such amendment would be in its best interests. DELAWARE GENERAL CORPORATION LAW SECTION 203. The Company is subject to Section 203 of the GCLSD, which imposes restrictions on "business combinations" (as defined therein) with interested stockholders (being any person who acquired 15% or more of the Company's outstanding voting stock). 56 In general, the Company is prohibited from engaging in business combinations with an interested stockholder, unless (i) before such person became an interested stockholder, the Board approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination, (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the Company outstanding at the time the transaction commenced (excluding for purposes of determining the number of shares outstanding stock held by directors who are also officers of the Company and by employee stock plans that do not provide employees with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer) or (iii) on or subsequent to the date on which such person became an interested stockholder, the business combination is approved by the Board and authorized at a meeting of stockholders by the affirmative vote of the holders of two-thirds of the outstanding voting stock of the Company not owned by the interested stockholder. Under Section 203, the restrictions described above also do not apply to certain business combinations proposed by an interested stockholder following the earlier of the announcement of certain extraordinary transactions involving the Company and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of the Company's directors, if such extraordinary transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or who were recommended for election or elected to succeed such directors by a majority of such directors. By restricting the ability of the Company to engage in business combinations with an interested person, the application of Section 203 to the Company may provide a barrier to hostile or unwanted takeovers. VESTING OF MANAGEMENT RIGHTS UPON CERTAIN ACQUISITIONS. The terms of stock option agreements between the Company and certain members of management provide that all unvested options granted thereunder will vest upon either: (i) the acquisition by any one purchaser or group of more than 50% of the voting power of the stock of the Company; (ii) a replacement during any 12 month period of a majority of the Board (whose appointment is not endorsed by a majority of the Board prior to the date of such appointment); or (iii) the acquisition of assets having more than one-third of the total fair market value of the assets of the Company by any person or group of persons (a "Change of Control"). As of December 31, 1996 options to purchase an aggregate of 214,575 shares of Common Stock were unvested and subject to vesting upon a Change of Control, including options to purchase 62,385, 22,686, 21,197, 28,357 and 25,521 shares of Common Stock, by Messrs. DeCrane, MacDonald, Rankin, Keller and Becker, respectively. 57 SHARES ELIGIBLE FOR FUTURE SALE Of the shares of Common Stock to be outstanding after the Offering, shares will be available for resale in the public market without restriction immediately following the Offering if held by holders who are not "affiliates" of the Company (as defined in the Securities Act). All of the remaining shares are "restricted securities" within the meaning of Rule 144 adopted under the Securities Act. These restricted securities were issued and sold by the Company in private transactions in reliance upon exemptions from registration under the Securities Act. After expiration of the 180-day lock-up period following the Offering pursuant to agreements with the Underwriters, (i) all restricted securities will be available for resale pursuant to limitations of Rule 144 and (ii) the Company, pursuant to its Certificate, may authorize the issuance of additional shares of Common Stock and shares of one or more series of voting preferred stock. The issuance of additional shares of capital stock could result in the dilution of the voting power of the shares of Common Stock purchased in the Offering. In addition, following the expiration of the 180-day lock-up period, pursuant to the Registration Rights Agreement, certain stockholders have the right, subject to the terms and conditions of the Registration Rights Agreement, to require the Company to: (i) effect up to four registrations under the Securities Act covering all or any portion of the shares of Common Stock held by such stockholders, provided that if the Company effects a registration at the request of a stockholder, no further demand may be made by any stockholder for a period of at least nine months; and (ii) include all or any portion of such stockholders' shares of Common Stock in any proposed registration by the Company of shares of Common Stock (subject to reduction to the extent that the managing underwriter, if any, is of the opinion that such inclusion would adversely affect the marketing of the securities to be sold therein). Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market will develop, or if developed, will be sustained after the completion of the Offering. Factors such as announcements concerning the Company or its competitors, investor perception of the Company, fluctuations in the Company's operating results and general market conditions may cause the market price of the Common Stock to fluctuate significantly. Sales of a substantial number of shares of Common Stock in the public market after the Offering, or the expectation that such sales could occur, could adversely affect the market price of the Common Stock and the Company's ability to raise capital through a subsequent offering of securities. 58 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters named below (the "Underwriters") have severally agreed to purchase and the Company has agreed to sell to them, severally, the aggregate number of shares of Common Stock set forth opposite their respective names.
NUMBER OF UNDERWRITER SHARES - ------------------------------------------------------------ ----------- Schroder Wertheim & Co. Incorporated........................ Dean Witter Reynolds Inc.................................... ----------- Total................................................... ----------- -----------
The Underwriting Agreement provides that the several Underwriters are obligated, subject to the approval of certain legal matters by their counsel and certain other conditions, to purchase all the shares of Common Stock offered hereby (other than those covered by the Underwriters' over-allotment option described below), if any are purchased. Schroder Wertheim & Co. Incorporated and Dean Witter Reynolds Inc., as representatives of the several Underwriters (the "Representatives"), have advised the Company that the Underwriters propose to offer the shares to the public at the initial public offering price set forth on the cover page of this Prospectus; that the Underwriters propose initially to allow a concession not in excess of $ per share to certain dealers, including the Underwriters; that the Underwriters and such dealers may initially allow a discount of not in excess of $ per share to other dealers; and that the initial public offering price and the concession and discount to dealers may be changed by the Representatives after the initial public offering. The Company has granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of the Underwriting Agreement, to purchase up to an additional shares of Common Stock, at the initial public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. The Underwriters may exercise the option only to cover over-allotments, if any, in the sale of shares of Common Stock in the Offering. To the extent that the Underwriters exercise this option, each Underwriter shall be committed, subject to certain conditions, to purchase a number of additional shares proportionate to such Underwriter's initial commitment. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. The Company, certain management stockholders, directors and certain other stockholders have agreed not to offer to sell, sell, grant any option to purchase or otherwise dispose of any shares of Common Stock, subject to certain exceptions, for a period of 180 days after the date of this Prospectus without the prior written consent of Schroder Wertheim & Co. Incorporated. Prior to the Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price of the Common Stock will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in such negotiations are the Company's results of operations and financial condition, the prospects for the Company and for the 59 industry in which the Company operates, the Company's capital structure and prevailing conditions in the securities market. The Representatives have informed the Company that the Underwriters do not intend to confirm shares to accounts over which they exercise discretionary authority in excess of 5% of the total number of shares offered hereby. LEGAL MATTERS The validity of the Common Stock offered by this Prospectus is being passed on for the Company by Spolin & Silverman, Santa Monica, California. Certain legal matters will be passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California. EXPERTS The consolidated financial statements of the Company and the financial statements of Aerospace Display Systems as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company intends to furnish to its stockholders annual reports containing consolidated financial statements audited by its independent auditors and quarterly reports containing unaudited interim financial information for the first three quarters of each year. The Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1 under the Act for registration of the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to do not purport to be complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved and each statement shall be deemed qualified in its entirety by this reference. The Registration Statement and the exhibits and schedules thereto may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public reference facilities of the Commission's Regional Offices: New York Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also maintains a Web site (http:// www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 60 INDEX TO FINANCIAL STATEMENTS
PAGE ---- DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Report of Independent Accountants....................................... F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (Unaudited)........................................ F-3 Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996 (Unaudited)...................................................... F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1996 (Unaudited)........................................ F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996 (Unaudited)...................................................... F-6 Notes to Consolidated Financial Statements.............................. F-7 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) Report of Independent Accountants....................................... F-47 Balance Sheets as of December 31, 1994 and 1995 and September 18, 1996 (Unaudited)........................................................... F-48 Statements of Income for the years ended December 31, 1993, 1994 and 1995, the nine months ended September 30, 1995 (Unaudited) and the period from January 1 to September 18, 1996 (Unaudited)............... F-49 Statements of Changes in Owner's Net Investment for the years ended December 31, 1993, 1994 and 1995 and the period from January 1 to September 18, 1996 (Unaudited)........................................ F-50 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, the nine months ended September 30, 1995 (Unaudited), and the period from January 1 to September 18, 1996 (Unaudited)............... F-51 Notes to Financial Statements........................................... F-52
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of DeCrane Aircraft Holdings, Inc. The reverse stock split, a part of the Recapitalization described in Note 1 to the consolidated financial statements, has not been consummated at January 16, 1997. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 1994 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of 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. As discussed in Note 1, during 1993, the Company changed its method of accounting for income taxes." PRICE WATERHOUSE LLP Cleveland, Ohio April 9, 1996 F-2 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 1996 DECEMBER 31, ----------------------------- -------------------- PRO FORMA FOR 1994 1995 HISTORICAL RECAPITALIZATION --------- --------- ----------- ---------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents................................. $ 236 $ 305 $ 81 $ 81 Accounts receivable, net.................................. 10,810 8,792 10,750 10,750 Inventories............................................... 11,066 14,116 15,801 15,801 Prepaid expenses and other current assets................. 207 362 602 602 --------- --------- ----------- -------- Total current assets.................................... 22,319 23,575 27,234 27,234 Property and equipment, net................................. 8,349 7,387 9,092 9,092 Other assets, principally intangibles, net.................. 7,017 5,367 17,902 17,902 --------- --------- ----------- -------- Total assets............................................ $ 37,685 $ 36,329 $ 54,228 $ 54,228 --------- --------- ----------- -------- --------- --------- ----------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Short-term borrowings..................................... $ 835 $ 911 $ 530 $ 530 Current portion of long-term obligations to unaffiliated lenders................................................. 1,608 1,612 2,891 2,891 Convertible subordinated notes payable to related parties................................................. -- -- 2,882 2,882 Accounts payable.......................................... 5,939 5,079 5,118 5,118 Accrued expenses.......................................... 2,313 3,046 4,105 4,105 Income taxes payable...................................... 165 344 517 517 --------- --------- ----------- -------- Total current liabilities............................... 10,860 10,992 16,043 16,043 --------- --------- ----------- -------- Long-term liabilities Long-term obligations Unaffiliated lenders.................................... 15,793 16,316 21,264 21,264 Related parties......................................... 5,638 5,833 5,979 5,979 Deferred income taxes..................................... 2,175 3,110 3,109 3,109 Minority interests........................................ 124 142 43 43 --------- --------- ----------- -------- Total long-term liabilities............................. 23,730 25,401 30,395 30,395 --------- --------- ----------- -------- Commitments and contingencies (Note 17) Mandatorily redeemable common stock warrants................ 2,329 1,633 2,054 1,020 --------- --------- ----------- -------- Stockholders' equity (deficit) Cumulative convertible preferred stock, no par value; 4,804,018 shares authorized as of December 31, 1994 and 1995 and 8,304,018 shares as of September 30, 1996; 4,022,705 shares issued and outstanding as of December 31, 1994 and 1995 and 6,847,705 shares as of September 30, 1996 (none on a pro forma basis).................... 5,549 5,549 13,850 -- Common stock, no par value; 2,268,560 shares authorized as of December 31, 1994 and 1995 and 4,253,550 shares as of September 30, 1996; 85,593 shares issued and outstanding as of December 31, 1994 and 1995 and September 30, 1996 (none on a pro forma basis)............................. 58 58 62 -- Common stock, $.01 par value; 4,253,550 shares authorized as of January , 1997; 2,460,967 shares issued and outstanding............................................. -- -- -- 25 Additional paid-in capital................................ -- -- -- 14,921 Accumulated deficit....................................... (5,057) (7,807) (8,406) (8,406) Foreign currency translation adjustment................... 216 503 230 230 --------- --------- ----------- -------- Total stockholders' equity (deficit).................... 766 (1,697) 5,736 6,770 --------- --------- ----------- -------- Total liabilities and stockholders' equity (deficit)........................................... $ 37,685 $ 36,329 $ 54,228 $ 54,228 --------- --------- ----------- -------- --------- --------- ----------- --------
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, EXCEPT PER SHARE DATA)
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) Revenues............................................... $ 48,197 $ 47,092 $ 55,839 $ 42,274 $ 43,059 Cost of sales.......................................... 36,258 36,407 43,463 32,378 33,277 --------- --------- --------- --------- --------- Gross profit....................................... 11,939 10,685 12,376 9,896 9,782 --------- --------- --------- --------- --------- Operating expenses Selling, general and administrative expenses......... 7,953 7,716 9,426 6,764 7,229 Amortization of intangible assets.................... 1,210 1,209 1,115 902 538 Gain on litigation settlement, net................... -- -- -- -- (157) --------- --------- --------- --------- --------- Total operating expenses........................... 9,163 8,925 10,541 7,666 7,610 --------- --------- --------- --------- --------- Income from operations................................. 2,776 1,760 1,835 2,230 2,172 Other expenses (income) Interest expense Unaffiliated lenders............................... 2,805 2,966 2,822 2,107 2,024 Related parties.................................... 135 278 999 749 797 Other (income) expenses.............................. (161) 324 297 250 33 Minority interests................................... 13 8 85 54 150 --------- --------- --------- --------- --------- Loss before provision for income taxes, cumulative effect of change in accounting principle and extraordinary item................................... (16) (1,816) (2,368) (930) (832) Provision for income taxes............................. (620) (613) (1,078) (642) (265) --------- --------- --------- --------- --------- Loss before cumulative effect of change in accounting principle and extraordinary item..................... (636) (2,429) (3,446) (1,572) (1,097) Cumulative effect on prior years of change in accounting for income taxes.......................... (121) -- -- -- -- Extraordinary loss from debt refinancing............... -- (264) -- -- -- --------- --------- --------- --------- --------- Net loss............................................... (757) (2,693) (3,446) (1,572) (1,097) Cumulative convertible preferred stock dividends....... (108) (387) (557) (417) (844) --------- --------- --------- --------- --------- Net loss applicable to common stockholders............. $ (865) $ (3,080) $ (4,003) $ (1,989) $ (1,941) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Pro forma net loss per common share (Unaudited)........ $ (1.47) $ (.71) --------- --------- --------- --------- Pro forma weighted average number of common shares outstanding (Unaudited).............................. 2,728 2,728 --------- --------- --------- ---------
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 (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
CUMULATIVE COMMON STOCK FOREIGN CONVERTIBLE ------------------------ CURRENCY PREFERRED NUMBER OF ACCUMULATED TRANSLATION STOCK SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL ----------- ----------- ----------- ------------- ------------- --------- Balance, December 31, 1992........................ $ -- 83,324 $ 57 $ (1,656) $ (80) $ (1,679) Net loss.......................................... -- -- -- (757) -- (757) Adjustment to redemption value of mandatorily redeemable common stock warrants................ -- -- -- (107) -- (107) Translation adjustment............................ -- -- -- -- (75) (75) ----------- ----------- --- ------------- ------ --------- Balance, December 31, 1993........................ -- 83,324 57 (2,520) (155) (2,618) Reclassification of mandatorily redeemable cumulative convertible preferred stock.......... 5,168 -- -- -- -- 5,168 Net loss.......................................... -- -- -- (2,693) -- (2,693) Adjustment to redemption value of mandatorily redeemable common stock warrants................ -- -- -- 189 -- 189 Issuance of cumulative convertible preferred stock, net...................................... 381 -- -- -- -- 381 Mandatorily redeemable common stock warrants issued pursuant to anti-dilution provisions..... -- -- -- (33) -- (33) Stock option exercised............................ -- 2,269 1 -- -- 1 Translation adjustment............................ -- -- -- -- 371 371 ----------- ----------- --- ------------- ------ --------- Balance, December 31, 1994........................ 5,549 85,593 58 (5,057) 216 766 Net loss.......................................... -- -- -- (3,446) -- (3,446) Adjustment to redemption value of mandatorily redeemable common stock warrants................ -- -- -- 696 -- 696 Translation adjustment............................ -- -- -- -- 287 287 ----------- ----------- --- ------------- ------ --------- Balance, December 31, 1995........................ 5,549 85,593 58 (7,807) 503 (1,697) Net loss.......................................... -- -- -- (1,097) -- (1,097) Adjustment to redemption value of mandatorily redeemable common stock warrants................ -- -- -- 505 -- 505 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................. -- -- 4 -- -- 4 Translation adjustment............................ -- -- -- -- (273) (273) ----------- ----------- --- ------------- ------ --------- Balance, September 30, 1996 (Unaudited)........... $ 13,850 85,593 $ 62 $ (8,406) $ 230 $ 5,736 ----------- ----------- --- ------------- ------ --------- ----------- ----------- --- ------------- ------ ---------
The accompanying notes are an integral part of the consolidated financial statements. F-5 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities Net loss............................................................... $ (757) $ (2,693) $ (3,446) $ (1,572) $ (1,097) Adjustments to reconcile net loss to net cash provided by (used for) operating activities Depreciation and amortization........................................ 3,553 3,868 4,244 3,241 2,806 Amortization of debt discount...................................... 89 121 298 224 259 Deferred income taxes.............................................. 540 521 867 571 33 Minority interests in earnings of subsidiaries..................... 13 8 85 54 150 Cumulative effect of change in accounting for income taxes......... 121 -- -- -- -- Extraordinary loss from debt refinancing........................... -- 264 -- -- -- Gain on sale of equipment.......................................... (109) (37) (15) (20) -- Changes in assets and liabilities Accounts receivable.............................................. (2,270) (1,549) 2,256 1,844 (949) Inventories...................................................... (539) (1,381) (2,962) (2,474) 1,149 Prepaid expenses and other assets................................ 238 390 274 (296) 207 Accounts payable................................................. 908 (973) (1,004) (205) (536) Accrued expenses................................................. 667 (920) 682 702 880 Income taxes payable............................................. 20 59 178 43 184 --------- --------- --------- --------- --------- Net cash provided by (used for) operating activities........... 2,474 (2,322) 1,457 2,112 3,086 --------- --------- --------- --------- --------- Cash flows from investing activities Purchase of net assets of Aerospace Display Systems.................... -- -- -- -- (11,401) Purchase of minority stockholder's interest............................ -- -- -- -- (5,207) Capital expenditures................................................... (666) (1,016) (1,203) (1,133) (748) Other, net............................................................. 37 23 (259) 35 (29) --------- --------- --------- --------- --------- Net cash used for investing activities......................... (629) (993) (1,462) (1,098) (17,385) --------- --------- --------- --------- --------- Cash flows from financing activities Financing of acquisitions Proceeds from issuance of cumulative convertible preferred stock, net................................................................ -- -- -- -- 8,806 Revolving line of credit borrowings.................................. -- -- -- -- 5,000 Convertible subordinated note borrowings from related parties........ -- -- -- -- 3,000 Senior and senior subordinated term loan borrowings (including amounts allocated to mandatorily redeemable common stock warrants)........... 750 23,000 -- -- -- Senior, senior subordinated and related party debt repaid.............. -- (19,769) -- -- -- Net borrowings (payments) under revolving line of credit agreements.... (880) 3,167 1,972 (472) (481) Principal payments on capitalized lease and other long-term obligations.......................................................... (1,389) (1,024) (1,665) (634) (1,416) Proceeds from issuance of cumulative convertible preferred stock, net.................................................................. -- 381 -- -- 112 Payment of deferred financing costs.................................... (119) (2,670) -- -- (648) Other, net............................................................. 180 (57) (266) (53) (249) --------- --------- --------- --------- --------- Net cash (used for) provided by financing activities........... (1,458) 3,028 41 (1,159) 14,124 --------- --------- --------- --------- --------- Effect of foreign currency translation on cash........................... (33) 82 33 26 (49) --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents..................... 354 (205) 69 (119) (224) Cash and cash equivalents at beginning of period......................... 87 441 236 236 305 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period............................... $ 441 $ 236 $ 305 $ 117 $ 81 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. F-6 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS DeCrane Aircraft Holdings, Inc. and subsidiaries (the "Company") is a manufacturer of avionics components and a provider of avionics systems integration services in certain niche markets of the commercial aircraft industry. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts on the consolidated balance sheets, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The consolidated financial information as of September 30, 1996 and for the nine months ended September 30, 1995 and 1996 is unaudited. In the opinion of the Company, the unaudited financial information is presented on a basis consistent with the audited financial statements and contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. RECAPITALIZATION In January 1997, the holders of certain securities agreed, subject to board of director and stockholder approval, to a plan for the recapitalization of the Company (the "Recapitalization"). The Recapitalization is a condition to the consummation of the anticipated initial public offering (the "Offering") and would be effective concurrent therewith. The Recapitalization provides for: (i) the conversion of all 6,847,705 shares of issued and outstanding cumulative convertible preferred stock into 1,941,804 shares of common stock; (ii) the exercise and conversion of all 52,784 and 9,355 issued and outstanding Series B preferred stock warrants and common stock warrants, respectively, into a total of 24,323 shares of common stock; (iii) the exercise of 409,247 mandatorily redeemable common stock warrants (the "Redeemable Warrants") for the purchase of common stock; and (iv) 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. Redeemable Warrants exercisable into 403,586 common shares would remain after the Recapitalization. Of this amount, 138,076 Redeemable Warrants would be cancelled upon the consummation of the Offering and repayment of the Company's senior subordinated debt and convertible notes in accordance with the terms of the respective warrant agreements. The Company intends to reorganize as a Delaware corporation. In conjunction with the reorganization, the Company will establish a $.01 par value for its common stock. F-7 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or market, as determined under the first-in, first-out ("FIFO") method. Costs include materials, labor and manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, ranging from two to twenty years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or remaining lease term, whichever is less. Expenditures for maintenance and repairs are expensed as incurred. The cost of improvements are capitalized. Upon retirement or disposal, the cost and accumulated depreciation of property and equipment are reduced and any gain or loss is recorded in income or expense. OTHER ASSETS Goodwill is amortized on a straight-line basis over periods ranging from 26 to 30 years. The covenants not to compete are amortized on a straight-line basis over five years. Other intangibles are amortized on a straight-line basis over their estimated useful lives, ranging from ten to twenty years. Revolving credit agreement deferred financing costs are amortized on a straight-line basis over the term of the agreement. Term debt deferred financing costs are amortized using the interest method over the terms of their respective agreements. The Company periodically evaluates goodwill to assess recoverability based upon expectations of future non-discounted operating cash flows related to the acquired businesses. Based upon the most recent analysis, the Company believes that no impairment of goodwill existed at December 31, 1995 or September 30, 1996. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS 121 requires the Company to review long-lived assets and certain intangible assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. SFAS 121 also requires that long-lived assets and certain intangible assets to be disposed of be recorded at the lower of carrying value or fair value less disposal costs. SFAS 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995, and must be adopted on a prospective basis. The Company adopted SFAS 121 prospectively in the first quarter of 1996, the adoption of which had no impact on the consolidated financial statements. F-8 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DERIVATIVES The premium paid for an interest rate cap agreement is amortized to interest expense using the interest method of amortization over the term of the cap assurance period. The unamortized premium is classified as other current and long-term assets in the consolidated financial statements. Amounts receivable under the cap agreement are accrued as a reduction of interest expense. Market value gains and losses on forward foreign exchange contracts are recognized in the consolidated statements of operations and aggregated a net loss of $161,000 for the nine months ended September 30, 1996 (none in prior periods). INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under the liability method specified in SFAS 109, a deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in the liability for deferred taxes. The deferred method used in years prior to 1993 required the Company to provide for deferred tax expense based on certain items of income and expense which were reported in different years in the consolidated financial statements and tax returns as measured by the tax rate in effect for the year the difference originated. The cumulative effect on prior years of adopting SFAS 109 in 1993 was to decrease net income by $121,000, which is reported in the consolidated statements of operations as the effect of the change in accounting for income taxes. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's U.K. and Swiss subsidiaries have been translated into U.S. dollars from their functional currencies, pounds sterling and Swiss francs, respectively, in the consolidated financial statements. Assets and liabilities have been translated at the exchange rate on the balance sheet date and income statement amounts have been translated at average exchange rates in effect during the period. The net translation adjustment is reflected as a component of stockholders' equity (deficit). Realized foreign currency exchange gains (losses) included in other expenses (income) in the consolidated statements of operations were $43,000, $(361,000) and $(314,000) for the years ended December 31, 1993, 1994 and 1995, respectively. STOCK OPTION PLAN In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123"). SFAS 123 establishes a "fair value" method of accounting for the value of grants under stock based compensation plans. As permitted under SFAS 123, the Company will elect to continue to measure compensation expense F-9 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) related to the employee stock option plan utilizing the intrinsic value method as prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. However, beginning in 1996, the Company will present in the notes to its consolidated financial statements the pro forma effect on its results of operations as if the fair value method of measuring compensation expense related to the employee stock option plan was utilized as described in SFAS 123. REVENUE RECOGNITION Revenues from the sale of manufactured products, except for products manufactured under long-term contracts, are recorded when products are shipped. Revenues on long-term contracts are recognized using the percentage-of-completion method based on costs incurred to date compared with total estimated costs at completion. Unbilled accounts receivable were $3,938,000, $81,000 and $710,000 at December 31, 1994 and 1995 and September 30, 1996, respectively. Unbilled accounts receivable are expected to be billed during the succeeding twelve month period. PRO FORMA LOSS PER COMMON SHARE (UNAUDITED) The Company's historical capital structure is not indicative of its prospective structure due to the Recapitalization that will occur concurrent with the closing of the Offering. Accordingly, historical loss per common share is not considered meaningful and has not been presented herein. Pro forma loss per common share reflects the Recapitalization and is computed using the weighted average number of common shares assumed to have been outstanding during the periods. The dilutive effect of common equivalent shares, other than for certain stock options granted in 1996 and Redeemable Warrants and preferred stock sold in 1996, has not been included because their inclusion would have decreased the loss per share. Shares issuable for options granted in 1996 and Redeemable Warrants and preferred stock sold in 1996 at prices less than the anticipated initial public offering price have been included for all periods presented using the treasury stock method. In addition, the weighted average number of shares assumes that Redeemable Warrants and preferred stock which will be converted into common stock pursuant to the Recapitalization had been converted and thus outstanding since the dates of issuance. STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, cash equivalents include short-term, highly liquid investments with original maturities of three months or less. RECENT ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 125"). SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. The new standard provides accounting and reporting standards for transfers and servicing of financial assets and F-10 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) extinguishments of liabilities. The Company does not expect adoption of SFAS 125 will have a material effect on the consolidated financial statements. NOTE 2--ACQUISITIONS MINORITY STOCKHOLDER'S 25% INTEREST On February 20, 1996, the Company purchased the remaining 25% of a subsidiary's stock it did not already own from the subsidiary's minority stockholder (the "Minority Stockholder") for a total purchase price of $5,748,000, including $334,000 of acquisition related costs and expenses (the "Minority Interest Acquisition"). The purchase price consisted of $4,873,000 paid in cash at closing and a $600,000 non-interest bearing obligation payable to the Minority Stockholder (Note 10). The cash portion of the purchase price was funded with the proceeds from the sale of Series D preferred stock and Redeemable Warrants (Notes 14 and 15). The acquisition was accounted for as a purchase and the $5,333,000 difference between the purchase price and 25% of the fair value of the net assets acquired was recorded as goodwill and is being amortized over 26 years, representing the remaining useful life of the goodwill recorded upon the initial 75% acquisition in October 1991 (Note 6). The consolidated results of operations for the nine months ended September 30, 1996 include 100% of the operating results of the subsidiary subsequent to February 20, 1996. For the periods prior to February 20, 1996, the consolidated results of operations include a charge for the Minority Stockholder's 25% ownership interest. For the periods prior to February 20, 1996, the Minority Stockholder, who is also President of the subsidiary, was compensated pursuant to an employment agreement. Compensation was the greater of $130,000 per year or 25% of the subsidiary's earnings before interest, taxes and certain expenses. Compensation was payable on or before April 15th of each year, although the Minority Stockholder received a bi-monthly draw amounting to $185,000 per year, plus additional periodic payments, which were offset against the compensation payable. The employment agreement was cancelled as of February 20, 1996. For the years ended December 31, 1993, 1994 and 1995, the Minority Stockholder earned compensation of $669,000, $619,000 and $851,000, respectively. Accrued compensation payable of $652,000 as of December 31, 1995 was paid to the Minority Stockholder on February 20, 1996. No accrued compensation was payable as of December 31, 1994. AEROSPACE DISPLAY SYSTEMS On September 18, 1996, the Company purchased substantially all of the assets, subject to certain liabilities assumed, of the Aerospace Display Systems division ("ADS") of Allard Industries, Inc. ("Allard"). The total purchase price was $13,395,000, including $402,000 in acquisition related costs and an estimated $292,000 of additional consideration payable pursuant to working capital adjustment provisions contained in the purchase agreement. ADS develops and manufactures dichroic liquid crystal displays and modules for commercial and military avionics systems. F-11 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 2--ACQUISITIONS (CONTINUED) The acquisition was funded with the proceeds from the sale of Series E preferred stock, convertible subordinated notes and Redeemable Warrants (Notes 8, 14 and 15), borrowings under the Company's revolving line of credit and a $2,000,000 non-interest bearing obligation payable to certain Allard stockholders (Note 10). The acquisition was accounted for as a purchase and the $7,691,000 difference between the purchase price and the fair value of the net assets acquired was recorded as goodwill and is being amortized over 30 years (Note 6). The consolidated results of operations for the nine months ended September 30, 1996 include the operating results of ADS subsequent to September 18, 1996. ELSINORE On December 5, 1996, the Company acquired Elsinore Aerospace Services, Inc. and the Elsinore Engineering Services Division (collectively, "Elsinore") of Elsinore, L.P.. Elsinore provides engineering services to the commercial aircraft industry. The total purchase price was $2,550,000, including $300,000 of estimated acquisition related costs. The purchase price consisted of $1,300,000 paid in cash at closing and a $1,250,000 15% promissory note payable to the sellers, due on the earlier of February 15, 1997 or three days following the closing of the Offering. The purchase agreement provides for an adjustment of the purchase price should the amount of working capital decline as of the closing date. The purchase price will be allocated to the assets acquired and liabilities assumed using estimated fair values and it is anticipated that approximately $1,800,000 will be assigned to goodwill and other intangibles, subject to final determination of the purchase price. PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS Unaudited pro forma consolidated results, assuming the Minority Interest and ADS acquisitions had been consummated on January 1, 1995, are as follows (amounts in thousands):
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------- 1995 1995 1996 -------------- --------- --------- Revenues.............................................. $ 65,791 $ 49,923 $ 50,765 Net loss.............................................. (3,225) (1,403) (526) Net loss applicable to common stockholders............ (3,782) (1,820) (1,370)
The above information reflects adjustments for depreciation, amortization, minority interest and interest expense based on the new cost basis and debt structure of the Company. The pro forma effect of the Elsinore Acquisition is not material and, accordingly, is not reflected in the above information. In addition, pro forma per share information is not considered meaningful and has not been presented above due to the Recapitalization that will occur concurrent with the closing of the Offering. F-12 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 3--ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS ACCOUNTS RECEIVABLE Accounts receivable is net of an allowance for doubtful accounts of $243,000, $259,000 and $362,000 at December 31, 1994 and 1995 and September 30, 1996, respectively. The Company is potentially subject to concentrations of credit risk as the Company relies heavily on customers operating in the domestic and foreign commercial aircraft industry. Generally, the Company does not require collateral or other security to support accounts receivable subject to credit risk. Under certain circumstances, deposits or cash on delivery terms are required. The Company maintains reserves for potential credit losses and generally, such losses have been within management's expectations. SIGNIFICANT CUSTOMERS Two customers each accounted for more than 10% of the Company's consolidated revenues, as follows:
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------ 1993 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Customer A................................... 12.9% 11.9% 8.9% 9.0% 13.9% Customer B................................... 11.1% 13.7% 25.4% 30.6% 10.5% --- --- --- --- --- Total...................................... 24.0% 25.6% 34.3% 39.6% 24.4% --- --- --- --- --- --- --- --- --- ---
Complete loss of either customer could have a significant adverse impact on the results of operations expected in future periods. The Company anticipates that sales to Customer B will further decrease subsequent to September 30, 1996. However, the Company believes this decrease will be offset by sales to other customers. NOTE 4--INVENTORIES Inventories are comprised of the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- -------------- (UNAUDITED) Raw material.......................................... $ 6,460 $ 7,857 $ 8,703 Work-in process....................................... 1,253 1,732 2,616 Finished goods........................................ 3,353 4,527 4,482 --------- --------- -------------- Total inventories................................... $ 11,066 $ 14,116 $ 15,801 --------- --------- -------------- --------- --------- --------------
Included above are costs relating to long-term contracts recognized on the percentage of completion method of $1,927,000 and $175,000 at December 31, 1995 and September 30, 1996, respectively (none in 1994). At December 31, 1995, costs incurred included $1,457,000 pertaining to a contract which was partially terminated and settled. The settlement was received in March 1996 with no resulting loss. F-13 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 5--PROPERTY AND EQUIPMENT Property and equipment includes the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- -------------- (UNAUDITED) Machinery and equipment............................... $ 10,761 $ 11,634 $ 13,515 Tooling............................................... 2,290 2,557 3,120 Computer equipment, furniture and fixtures............ 1,338 1,639 2,198 Leasehold improvements................................ 1,007 1,057 1,306 --------- --------- -------------- Total cost.......................................... 15,396 16,887 20,139 Accumulated depreciation and amortization........... (7,047) (9,500) (11,047) --------- --------- -------------- Net property and equipment........................ $ 8,349 $ 7,387 $ 9,092 --------- --------- -------------- --------- --------- --------------
Machinery and equipment under capital leases included above consists of the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- --------------- (UNAUDITED) Total cost................................................ $ 1,008 $ 864 $ 1,084 Accumulated depreciation and amortization................. (128) (237) (508) --------- --------- ------- Net machinery and equipment............................. $ 880 $ 627 $ 576 --------- --------- ------- --------- --------- -------
Depreciation of machinery and equipment under capital leases is included in cost of sales in the consolidated financial statements. On December 12, 1996, the Company purchased all of the manufacturing assets relating to the cold-heading manufacturing facility of the Qualitronix Division of AMP, Inc. (the "AMP Facility"). The purchase price of $7,000,000 (subject to adjustment) consisted of $5,399,000 paid in cash at closing with the balance payable in early 1997. F-14 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 6--OTHER ASSETS Other assets includes the following and is net of accumulated amortization for the respective periods as parenthetically noted (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- -------------- (UNAUDITED) Goodwill (net of $359, $445 and $647).................... $ 2,226 $ 2,140 $ 14,962 Deferred financing costs (net of $100, $708 and $1,174) (Notes 10 and 21)...................................... 2,534 1,926 2,287 Covenants not to compete (net of $3,958 and $2,350)...... 1,434 442 -- Other intangibles (net of $136, $173 and $155)........... 357 322 284 Other assets............................................. 466 537 369 --------- --------- -------------- Other assets, net...................................... $ 7,017 $ 5,367 $ 17,902 --------- --------- -------------- --------- --------- --------------
As of December 31, 1995, fully amortized covenants not to compete and goodwill aggregating $2,600,000 were eliminated against the related accumulated amortization. As of June 25, 1996, the remaining net unamortized balance of covenants not to compete aggregating $163,000 ($2,792,000 cost and $2,629,000 accumulated amortization) were written off pursuant to the litigation settlement with the former owner of acquired businesses (Note 17). As of September 30, 1996, goodwill included $13,024,000, resulting from the Minority Interest Acquisition and ADS acquisition. NOTE 7--SHORT-TERM BORROWINGS The Company's Swiss subsidiary has a short term revolving line of credit with a Swiss bank under which borrowings of $835,000, $911,000 and $530,000 were outstanding at December 31, 1994 and 1995 and September 30, 1996, respectively. Interest on the line accrues at the bank's prime rate (6.25% at December 31, 1995) plus 0.25%. The line of credit is secured by inventory and accounts receivable, and is guaranteed by the Company. NOTE 8--CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES Convertible subordinated notes payable (the "Convertible Notes") are as follows (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- --------------- (UNAUDITED) Convertible Notes, 15% interest and principal payable as described below........................................ $ -- $ -- $ 3,000 Unamortized original issue discount...................... -- -- (118) --------- --------- ------- Convertible Notes, net................................. $ -- $ -- $ 2,882 --------- --------- ------- --------- --------- -------
In conjunction with the ADS acquisition, the Company sold Convertible Notes and Redeemable Warrants to a group of investors, who are also related parties (Note 21). As described in Note 14, F-15 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 8--CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES (CONTINUED) $124,000 of the aggregate $3,000,000 proceeds was allocated to Redeemable Warrants in the consolidated financial statements. The corresponding reduction in the recorded principal amount of the notes is treated as debt discount and is being amortized as interest expense over the life of the notes resulting in a 20.5% effective interest rate. The Convertible Notes mature on the earlier of June 30, 1997 or the occurrence of an initial public offering ("IPO"), as defined. If an IPO does not occur by June 30, 1997, the $3,000,000 outstanding principal balance will convert into 750,000 shares of Series E preferred stock at a $4.00 per share conversion price. Interest is payable quarterly commencing December 31, 1996. On each quarterly interest payment date, the Company may elect to either pay the interest in cash or defer the interest payment until the principal portion of the Convertible Notes is due and payable (the "Deferred Interest"). The Deferred Interest is added to the principal balance of the Convertible Notes for the purpose of computing the interest payable for subsequent quarters. The Company's senior debt agreements, as described in Note 10, prohibit the Company from making interest payments in cash until the senior debt is repaid in full. When the Deferred Interest is payable, each note holder may elect to receive the amount payable in either cash, in Series E preferred stock at a $4.00 per share conversion price if an IPO has not occurred or if an IPO has occured in shares of common stock, the number of which is calculated using the per share price at which such shares were offered in the IPO. The Convertible Notes are subordinate in right of payment to the senior and senior subordinated obligations described in Note 10, pari passu with the acquisition financing payable to sellers described in Note 10 and senior to all capital shares of the Company. NOTE 9--ACCRUED EXPENSES Accrued expenses are comprised of the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- --------------- (UNAUDITED) Salaries, wages, compensated absences and payroll related taxes.................................................. $ 1,167 $ 1,413 $ 2,120 Compensation payable to Minority Stockholder (Note 17)... -- 652 -- Due to former owner of acquired businesses (Note 17)..... -- 242 -- Acquisition and related financing costs (Note 21)........ -- 9 520 Interest payable to related parties (Notes 10 and 21).... 379 19 251 Other accrued expenses................................... 767 711 1,214 --------- --------- ------- Total accrued expenses................................. $ 2,313 $ 3,046 $ 4,105 --------- --------- ------- --------- --------- -------
F-16 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 10--LONG-TERM OBLIGATIONS Long-term obligations outstanding includes the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- -------------- (UNAUDITED) SENIOR DEBT Senior revolving line of credit......................................... $ 2,282 $ 4,304 $ 9,143 Senior term notes payable, due in quarterly installments through September 30, 2001 plus interest...................................... 14,575 13,178 12,122 SENIOR SUBORDINATED DEBT PAYABLE TO RELATED PARTIES Senior subordinated notes payable, due on December 31, 2001 plus 12% interest payable semi-annually........................................ 5,638 5,833 5,979 OTHER SECURED DEBT Capital lease obligations, with interest at 8.63% to 16.47%, secured by leased equipment (Note 5)............................................. 544 446 526 Equipment financing facility, due in quarterly installments of $17,000 through December 31, 2000 plus accrued interest at 6.25%.............. -- -- 240 ACQUISITION FINANCING PAYABLE TO SELLERS Payable to Allard Stockholders, due in monthly installments of $56,000 through August 18, 1999............................................... -- -- 1,651 Payable to Minority Stockholder, due in monthly installments of $33,000 through December 15, 1997............................................. -- -- 473 --------- --------- -------------- Total long-term obligations........................................... 23,039 23,761 30,134 Less current portion payable to unaffiliated lenders.................. (1,608) (1,612) (2,891) --------- --------- -------------- Long-term obligations, less current portion......................... $ 21,431 $ 22,149 $ 27,243 --------- --------- -------------- --------- --------- --------------
1994 DEBT REFINANCING In November 1994, the Company refinanced substantially all of its debt. A maximum $5,000,000 senior revolving line of credit and $15,000,000 of senior term notes (collectively "Senior Debt") were provided by two banks (the "Senior Lenders"). Senior subordinated notes aggregating $7,000,000 were provided by two institutional lenders (the "Senior Subordinated Lenders"). Fees and expenses associated with obtaining the financing aggregated $2,634,000 and are capitalized as deferred financing costs. As described in Note 14, $1,835,000 of the proceeds were allocated to Redeemable Warrants issued to the lenders. Proceeds from the refinancing were used to repay existing debt outstanding of $19,769,000, including $960,000 of notes payable to related parties, and costs incurred in connection with the refinancing. The Company incurred a $264,000 extraordinary loss in connection with the debt refinancing related to the write-off of unamortized deferred financing costs, a charge for unamortized debt discounts and a prepayment penalty. F-17 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED) SENIOR DEBT The Senior Debt is secured by the Company's assets of $34,755,000 at December 31, 1995 ($52,402,000 at September 30, 1996), which excludes equipment under capital lease obligations (Note 5) and certain accounts receivable and inventory of the Company's Swiss subsidiary. In September 1996, the Senior Debt agreement was amended to provide for a portion of the funds for the ADS acquisition. The terms of the amendment are described below under "ADS Acquisition Amendment." SENIOR REVOLVING LINE OF CREDIT At December 31, 1995, the Company had a $5,000,000 senior revolving line of credit, subject to a defined borrowing base, expiring on November 2, 1997. The Company is required to pay an annual commitment fee of 0.5% on the unused portion. At December 31, 1995, additional borrowings of $696,000 were available under the agreement. In February 1996, the Senior Debt agreement was amended to permit the sale of Series D Preferred Stock (Note 15) in conjunction with the Minority Interest Acquisition. The amendment temporarily reduced the $5,000,000 maximum availability under the agreement to $4,400,000 until such time the $33,000 monthly installments due to the Minority Stockholder for the acquisition financing are paid. At the Company's option, borrowings under the revolving line of credit bear interest at either the Base Rate plus 1.25% or the Eurodollar Rate plus 2.5% per annum. The Base Rate is the higher of the Federal Funds rate plus 1.5% or the prime rate. The Eurodollar Rate is the London Interbank Offered Rate ("LIBOR"). At December 31, 1995, the Company had selected the Base Rate interest option (Base Rate was 8.5% at December 31, 1995). SENIOR TERM NOTES The senior term notes are due in quarterly installments as follows (amounts in thousands): March 31, 1996 through and including December 31, 1996............. $ 375 March 31, 1997 through and including December 31, 1997............. 469 March 31, 1998 through and including December 31, 1998............. 563 March 31, 1999 through and including June 30, 2001................. 656 September 30, 2001................................................. 1,312
At the Company's option, the senior term notes bear interest at either the Base Rate plus 1.5% or the Eurodollar Rate plus 3.0% per annum. The Base Rate and Eurodollar Rate are the same rates as under the senior revolving line of credit. On December 29, 1995, the Company elected to fix the interest rate charged on the term notes at the Eurodollar Rate of 5.6875% until April 1, 1996. On March 29, 1996, the Company elected to fix the interest rate at the Eurodollar Rate of 5.48% until June 28, 1996. During 1995, the Company entered into an interest rate cap agreement to reduce the potential impact of increases in interest rates on the senior term notes (Note 12). As described in Note 14, $442,000 of the proceeds of the senior term notes were allocated to Redeemable Warrants in the consolidated financial statements. The corresponding reduction in the F-18 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED) recorded principal amounts of the notes is treated as debt discount and is being amortized as interest expense over the life of the notes resulting in a 10.31% effective interest rate based on the interest rates in effect at December 31, 1995 (9.30% at September 30, 1996). Unamortized debt discount was $425,000, $322,000 and $253,000 at December 31, 1994 and 1995 and September 30, 1996, respectively. ADMINISTRATIVE FEES The Senior Lenders receive various administrative fees during the term of the Senior Debt agreement, payable on a monthly and quarterly basis. These fees aggregated $49,000 for the year ended December 31, 1995. Administrative fees for the two month period from the inception of the debt agreement to December 31, 1994 were not significant. On February 20, 1996, the administrative fees were increased to $112,000 per year commencing January 1, 1996. ADS ACQUISITION AMENDMENT In September 1996, the Senior Debt agreement was amended to provide a portion of the funds for the ADS acquisition. Maximum borrowings permitted under the senior revolving line of credit were increased from $7,500,000 to $12,500,000, subject to a defined borrowing base, and the expiration date was extended from November 2, 1997 to September 18, 1999. The interest rates charged on senior revolving line of credit borrowings were increased to either the Base Rate plus 3.25% or the Eurodollar Rate plus 4.5% per annum. The interest rates charged on the senior term notes were increased to either the Base Rate plus 3.5% or the Eurodollar Rate plus 5.0% per annum. Fees and expenses associated with obtaining the amendment aggregated $512,000 and are capitalized as deferred financing costs. Fees and expenses includes $179,000 ascribed to the value of Redeemable Warrants issued to the Senior Lenders in conjunction with obtaining the amendment (Note 14). INTEREST RATES AS OF SEPTEMBER 30, 1996 On September 30, 1996, the Company elected to fix the interest rate charged on $8,000,000 of the senior revolving line of credit borrowings at the Eurodollar Rate of 5.5% until December 9, 1996; the remaining borrowings are at the Base Rate (Base Rate was 8.25% at September 30, 1996). On September 26, 1996, the Company elected to fix the interest rate charged on the senior term notes at the Eurodollar Rate of 5.5% until December 9, 1996. AMP FACILITY PURCHASE AMENDMENT On December 12, 1996, the Senior Debt agreement was amended to provide the funds for the AMP Facility purchase. The Company issued an additional $5,000,000 of senior term notes, and maximum borrowings permitted under the senior revolving line of credit were increased from $12,500,000 to $15,750,000 under the same terms and interest rates described above. The $5,000,000 additional senior term notes are due in varying quarterly installments beginning March 31, 1998 through September 30, 2001. F-19 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED) The Company was charged an initial $250,000 fee for the financing and agreed to pay additional semi-annual fees on May 15 and November 15 each year commencing May 15, 1997 and continuing until the Company receives a firm commitment for an underwritten public offering with at least $20,000,000 of net cash proceeds to the Company. The semi-annual fee payable on May 15, 1997 is $67,000 and each succeeding such semi-annual fee payment increases by $67,000 over the previous payment amount. SENIOR SUBORDINATED NOTES PAYABLE TO RELATED PARTIES The Senior Subordinated Lenders, who are also related parties (Note 21), provided the Company with unsecured senior subordinated (to Senior Debt) term loans aggregating $7,000,000 (collectively referred to as "Senior Subordinated Debt") in conjunction with the Company's 1994 debt refinancing. As described in Note 14, $1,393,000 of the proceeds of the senior subordinated notes were allocated to Redeemable Warrants in the consolidated financial statements. The corresponding reduction in the recorded principal amounts of the notes is treated as debt discount and is being amortized as interest expense over the life of the notes resulting in a 14.78% effective interest rate. Unamortized debt discount was $1,362,000, $1,167,000 and $1,021,000 at December 31, 1994 and 1995 and September 30, 1996, respectively. One of the Senior Subordinated Lenders receives an advisory fee for as long as the Senior Subordinated Debt is outstanding. During the years ended December 31, 1994 and 1995, the Company paid advisory fees of $12,000 and $72,000, respectively. On February 20, 1996, the advisory fee was increased to $100,000 per year, payable quarterly. SENIOR AND SENIOR SUBORDINATED DEBT RESTRICTIVE COVENANTS The Senior and Senior Subordinated Debt agreements contain certain restrictive covenants which require the Company to maintain certain defined financial ratios such as leverage, EBITDA, fixed charges, interest coverage, selling, general and administrative expense, accounts payable and current ratios, establish minimum levels of net worth, limit capital expenditures, including capital lease obligations, and limit additional indebtedness which may be incurred. The debt agreements also prohibit the Company from making any dividend payments on its preferred or common stock. At December 31, 1995, the Company was in default of the leverage, EBITDA, fixed charges, interest coverage and net worth restrictive covenants. On February 20, 1996, the Company received waivers of the defaults from its Senior and Senior Subordinated Lenders. Since March 31, 1996, the Company has been in compliance with the restrictive covenants. ACQUISITION FINANCING PAYABLE TO SELLERS In conjunction with the Minority Interest Acquisition and the ADS acquisition, the sellers provided financing that is payable in monthly installments over an eighteen-month and a three-year period, respectively. The Minority Stockholder and ADS payment obligations are non-interest bearing; original issue discounts of 9.75% and 11.5%, respectively, are being amortized over the payment obligation F-20 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED) terms. Unamortized debt discounts were $27,000 and $293,000 as of September 30, 1996 for the Minority Stockholder and ADS payment obligations, respectively. AGGREGATE MATURITIES The aggregate maturities of long-term obligations are as follows as of December 31, 1995 (amounts in thousands): Year ending December 31, 1996............................................................ $ 1,648 1997............................................................ 6,338 1998............................................................ 2,375 1999............................................................ 2,641 2000............................................................ 2,624 2001 and thereafter............................................. 9,624 --------- Total aggregate maturities.................................... 25,250 Less unamortized debt discounts............................... (1,489) --------- Total long-term obligations................................. $ 23,761 --------- ---------
The aggregate maturities of long-term obligations are as follows as of September 30, 1996 (amounts in thousands): Twelve months ending September 30, 1997............................................................ $ 3,018 1998............................................................ 3,182 1999............................................................ 12,505 2000............................................................ 2,720 2001............................................................ 3,303 2002 and thereafter............................................. 7,000 --------- Total aggregate maturities.................................... 31,728 Less unamortized debt discounts............................... (1,594) --------- Total long-term obligations................................. $ 30,134 --------- ---------
F-21 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 11--INCOME TAXES Loss before income taxes, cumulative effect of change in accounting principle and extraordinary item was taxed under the following jurisdictions (amounts in thousands):
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1994 1995 --------- --------- ------------ Domestic................................................... $ (332) $ (1,605) $ (2,534) Foreign.................................................... 316 (211) 166 --------- --------- ------------ Total.................................................... $ (16) $ (1,816) $ (2,368) --------- --------- ------------ --------- --------- ------------
The provisions for income taxes are as follows (amounts in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Current U.S. federal................................................. $ 28 $ 10 $ 60 State and local.............................................. 47 42 24 Foreign...................................................... 5 40 127 --------- --------- --------- Total current.............................................. 80 92 211 --------- --------- --------- Deferred U.S. federal................................................. 466 456 751 State and local.............................................. 141 137 226 Foreign...................................................... (67) (72) (110) --------- --------- --------- Total deferred............................................. 540 521 867 --------- --------- --------- Total provision U.S. federal................................................. 494 466 811 State and local.............................................. 188 179 250 Foreign...................................................... (62) (32) 17 --------- --------- --------- Total provision............................................ $ 620 $ 613 $ 1,078 --------- --------- --------- --------- --------- ---------
F-22 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 11--INCOME TAXES (CONTINUED) Deferred tax liabilities (assets) are comprised of the following (amounts in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Gross deferred tax liabilities Tax effect on earnings of subsidiary not consolidated for income tax purposes..................................... $ 861 $ 1,454 $ 2,431 Depreciable assets........................................ 753 1,072 781 Other..................................................... 200 298 367 --------- --------- --------- Gross deferred tax liabilities.......................... 1,814 2,824 3,579 --------- --------- --------- Gross deferred tax (assets) Loss carryforwards........................................ (413) (1,226) (1,391) Inventory................................................. (506) (959) (1,376) Accrued expenses.......................................... (215) (145) (220) Allowance for doubtful accounts........................... (43) (39) (41) Other..................................................... (33) (51) (122) --------- --------- --------- Gross deferred tax (assets)............................. (1,210) (2,420) (3,150) --------- --------- --------- Deferred tax assets valuation allowance..................... 984 1,771 2,681 --------- --------- --------- Net deferred tax liability................................ $ 1,588 $ 2,175 $ 3,110 --------- --------- --------- --------- --------- ---------
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal rate to the loss before income taxes, change in accounting principle and extraordinary item as a result of the following differences (amounts in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Income tax (benefit) at U.S. statutory rates................... $ (5) $ (617) $ (805) Increase (decrease) resulting from Tax on earnings of subsidiary not consolidated for tax purposes................................................... 607 593 977 Book benefit (provided) not provided for net operating loss carryforwards.............................................. (40) 530 773 Amortization of assets not deductible for income tax purposes................................................... 83 68 45 State income taxes, net of federal benefit................... 31 27 16 Lower tax rates on earnings of foreign subsidiaries.......... (86) (2) (11) Other, net................................................... 30 14 83 --------- --------- --------- Income tax at effective rates.............................. $ 620 $ 613 $ 1,078 --------- --------- --------- --------- --------- ---------
F-23 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 11--INCOME TAXES (CONTINUED) Approximately $4,100,000 and $2,000,000 of the Company's loss carryforwards remained at December 31, 1995 for federal and state income tax purposes, respectively. The carryforwards expire in varying amounts through 2010. No benefit for the remaining loss carryforwards has been recognized in the consolidated financial statements. The amount of loss carryforwards that may be utilized in the future are subject to potential limitations upon the occurrence of a change in control of the Company, as defined in the Internal Revenue Code. A change in control may have occurred during 1996 as a result of certain equity transactions and/or may occur upon the Offering. Undistributed earnings of foreign subsidiaries are not material to the consolidated financial statements. As such, foreign taxes that may be due, net of U.S. foreign tax credits, have not been provided. NOTE 12--DERIVATIVE FINANCIAL INSTRUMENTS The Company does not use derivative financial instruments for trading purposes but only to manage well defined interest and foreign exchange rate risks. INTEREST RATE RISK MANAGEMENT In January 1995, the Company entered into an interest rate cap agreement to reduce the potential impact of increases in interest rates on the Company's floating-rate senior term notes. The agreement, with one of the Senior Lenders (Note 21), provides for a three month LIBOR interest rate cap of 9.375% during the period December 29, 1995 through December 31, 1998 and entitles the Company to receive from the Senior Lender on a quarterly basis the amounts, if any, by which interest payments on its senior term debt, computed using the actual three month LIBOR rate, exceed the interest payment that would be due if the rate were fixed at 9.375%. Unamortized premiums were $141,000 as of December 31, 1995 ($99,000 as of September 30, 1996) and are classified as other current and long-term assets in the consolidated financial statements. FOREIGN EXCHANGE RISK MANAGEMENT The Company enters into Swiss franc ("CHF") forward exchange contracts to purchase Swiss francs as a general hedge against foreign inventory procurement and manufacturing costs. At December 31, 1995, the Company had entered into two forward exchange contracts aggregating $180,000 (CHF 206,000) at rates of 1.147 and 1.148 CHF per U.S. dollar. Settlement of both contracts occurred on January 3, 1996 at the contractual rates recorded as of December 31, 1995. On March 15, 1996, the Company entered into nine forward exchange contracts, with one of its Senior Lenders (Note 21), to purchase a total of CHF 5,265,000 for $4,525,000 at rates ranging between 1.1495 and 1.1826 CHF per U.S. dollar. Settlement of the contracts is to occur in nine equal monthly amounts of CHF 585,000 from April 15, 1996 through December 15, 1996. CREDIT RISK The Company believes exposure to derivative credit losses is minimal in the event of nonperformance by the Senior Lenders because any amounts due, but not paid, to the Company by the Senior Lenders could be offset against the Company's principal and interest payments to the Senior Lenders. F-24 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS The Company believes the recorded amounts of financial assets and liabilities approximates fair values as of December 31, 1994 and 1995, except as described below (amounts in thousands):
DECEMBER 31, 1994 DECEMBER 31, 1995 ---------------------- ---------------------- RECORDED FAIR RECORDED FAIR AMOUNT VALUE AMOUNT VALUE ----------- --------- ----------- --------- Financial assets Other current and long-term assets (interest rate cap, Note 12)......................... $ -- $ -- $ 141 $ 20 Financial liabilities Long-term obligations........................ 23,039 22,987 23,761 24,176
The fair value of the interest rate cap is estimated by obtaining current quotes as of the balance sheet date for a cap agreement of similar terms. The fair values of financial liabilities are estimated by discounting future cash flows at rates currently available to the Company for debt with the same remaining maturities, as advised by the Company's investment bankers. The recorded amounts shown in the table are included in the consolidated financial statements under the indicated captions. F-25 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS Mandatorily redeemable common stock warrants (the "Redeemable Warrants") were issued in conjunction with various debt and equity transactions during the three years ended December 31, 1995 and the nine months ended September 30, 1996 and are summarized in the table below (amounts in thousands):
VALUE OF REDEEMABLE WARRANTS ISSUED IN CONJUNCTION WITH ------------------------------------------------------------------------------------- SENIOR TOTAL SENIOR DEBT SENIOR FORMER CONVERTIBLE SERIES D SERIES E REDEEM- TERM AMEND- SUBORDINATED LENDER SUBORDINATED PREFERRED PREFERRED ABLE NOTES MENT NOTES DEBT NOTES STOCK STOCK WARRANTS --------- --------- ----------- --------- ----------- --------- --------- --------- Balance, December 31, 1992.... $ -- $ -- $ -- $ 543 $ -- $ -- $ -- $ 543 Adjustment to redemption value....................... -- -- -- 107 -- -- -- 107 --------- --------- ----------- --------- ----- --------- --------- --------- Balance, December 31, 1993.... -- -- -- 650 -- -- -- 650 Redeemable Warrants issued pursuant to anti-dilution provisions upon the sale of Preferred Stock............. -- -- -- 33 -- -- -- 33 Redeemable Warrants issued in conjunction with debt refinancing................. 442 -- 1,393 -- -- -- -- 1,835 Adjustment to redemption value....................... -- -- -- (189) -- -- -- (189) --------- --------- ----------- --------- ----- --------- --------- --------- Balance, December 31, 1994.... 442 -- 1,393 494 -- -- -- 2,329 Adjustment to redemption value....................... (132) -- (416) (148) -- -- -- (696) --------- --------- ----------- --------- ----- --------- --------- --------- Balance, December 31, 1995.... 310 -- 977 346 -- -- -- 1,633 Redeemable Warrants issued in conjunction with sale of Convertible Notes and Preferred Stock............. -- -- -- -- 124 492 124 740 Redeemable Warrants issued pursuant to anti-dilution provisions upon the sale of Preferred Stock............. -- -- -- 7 -- -- -- 7 Redeemable Warrants issued in conjunction with Senior Debt agreement amendment......... -- 179 -- -- -- -- -- 179 Adjustment to redemption value....................... (96) -- (302) (107) -- -- -- (505) --------- --------- ----------- --------- ----- --------- --------- --------- Balance, September 30, 1996 (Unaudited)................. $ 214 $ 179 $ 675 $ 246 $ 124 $ 492 $ 124 $ 2,054 --------- --------- ----------- --------- ----- --------- --------- --------- --------- --------- ----------- --------- ----- --------- --------- ---------
F-26 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) All Redeemable Warrants are subject to adjustment for anti-dilution, have certain demand registration rights and, in certain instances, are cancellable upon the occurrence of certain defined events. The table below summarizes the number of the Company's common shares subject to Redeemable Warrants, the number of Redeemable Warrants subject to cancellation, Redeemable Warrants exercisable and other information as of December 31, 1994 and 1995 and September 30, 1996:
REDEEMABLE WARRANTS ISSUED IN CONJUNCTION WITH ----------------------------------------------------------------------------------------- SENIOR SENIOR DEBT SENIOR FORMER CONVERTIBLE SERIES D SERIES E TERM AMEND- SUBORDINATED LENDER SUBORDINATED PREFERRED PREFERRED NOTES MENT NOTES DEBT NOTES STOCK STOCK ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total number of the Company's common shares subject to Redeemable Warrants at December 31, 1994......... 84,748 -- 266,990 94,558 -- -- -- December 31, 1995......... 84,748 -- 266,990 94,558 -- -- -- September 30, 1996 84,748 70,893 266,990 97,426 49,079 194,618 49,079 (Unaudited)............. Redeemable Warrants subject to cancellation at December 31, 1995......... -- -- 124,595 -- -- -- -- September 30, 1996 -- -- 124,595 -- 49,079 194,618 -- (Unaudited)............. Redeemable Warrants not subject to cancellation and exercisable at December 31, 1995......... 84,748 -- 142,395 94,558 -- -- -- September 30, 1996 84,748 70,893 142,395 97,426 -- -- 49,079 (Unaudited)............. Other information Exercise price per share.. $ .035 $ 14.11 $ .035 $ .0004 $ .035 $ .035 $ .035 Expiration date........... Nov. 2, Sep. 18, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2006 2004 2004 2006 2003 2006 TOTAL REDEEM- ABLE WARRANTS ----------- Total number of the Company's common shares subject to Redeemable Warrants at December 31, 1994......... 446,296 December 31, 1995......... 446,296 September 30, 1996 812,833 (Unaudited)............. Redeemable Warrants subject to cancellation at December 31, 1995......... 124,595 September 30, 1996 368,292 (Unaudited)............. Redeemable Warrants not subject to cancellation and exercisable at December 31, 1995......... 321,701 September 30, 1996 444,541 (Unaudited)............. Other information Exercise price per share.. Expiration date...........
The warrant holders have the right ("Put Option"), after various dates and contingent upon certain events, to require the Company to redeem the warrants and, in certain instances, to purchase the common stock issued upon exercise of the warrants. In all instances, the redemption or purchase price, shall be equal to the greater of either fair market value, book value or, a value based upon a defined formula which includes, in part, an earnings multiple. During the years ended December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1996, the Company increased (decreased) by $107,000, $(189,000), $(696,000) and $(505,000), respectively, the amount ascribed to the Redeemable Warrants to reflect estimated redemption value. The increase (decrease) was charged (credited) to stockholders' accumulated deficit. F-27 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) Each warrants' terms and provisions and related Put Options are described below. SENIOR TERM NOTE WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS All of the Senior Term Note warrants are held by the Senior Lenders. All of the warrants issued and outstanding are exercisable as of December 31, 1995 and September 30, 1996 and are not subject to cancellation. The warrant holders are entitled to receive any common stock dividends, when and if declared, which would have been paid upon the exercise in full of the warrants immediately prior to the record date for such dividend. The warrants do not have voting rights. PUT OPTION The Senior Lenders have the right, if certain "Senior Term Note Put Events", as defined below, occur prior to November 2, 1999 to require the Company to redeem all (but not less than all), of the warrants or the stock issued upon exercise of the warrants. After November 2, 1999, the Senior Lenders have the unrestricted right to require the Company to redeem all (but not less than all), of the warrants or the shares issued upon exercise of the warrants. DEFINITIONS The following terms are defined in the warrant agreements: SENIOR TERM NOTE PUT EVENTS--Defined as the occurrence of any of the following: 1) a defined change in control of the Company; 2) certain consolidations or mergers or the sale of substantially all of the assets of the Company; 3) repayment in full of all Senior Debt; or 4) the filing of a registration statement which relates to a "Qualified Public Offering." QUALIFIED PUBLIC OFFERING--Defined as a public offering of common stock with net proceeds of at least $25,000,000 and valuing the total common stock equity of the Company at $55,000,000 or more at closing. SENIOR DEBT AMENDMENT WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS All of the Senior Debt Amendment warrants are held by the Senior Lenders. All of the warrants issued and outstanding are exercisable as of September 30, 1996 and, under certain circumstances, the number issued may be reduced. The warrant holders are entitled to receive any common stock dividends, when and if declared, which would have been paid upon the exercise in full of the warrants immediately prior to the record date for such dividend. The warrants do not have voting rights. PUT OPTION The Senior Lenders have the right, if certain put events occur prior to September 18, 2001 to require the Company to redeem all (but not less than all), of the warrants or the stock issued upon exercise of the F-28 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) warrants. The put events are the same as the Senior Term Notes Put Events described above. After September 18, 2001, the Senior Lenders have the unrestricted right to require the Company to redeem all (but not less than all) of the warrants or the stock issued upon exercise of the warrants. SENIOR SUBORDINATED NOTE WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS All of the Senior Subordinated Note warrants are held by the Senior Subordinated Lenders and were issued in several series. The following table summarizes the warrants issued and outstanding as of December 31, 1995 and September 30, 1996:
NUMBER OF COMMON SHARES SUBJECT TO DATE WARRANTS WARRANTS BECOME EXERCISABLE ----------- ----------------------- Series of Redeemable Warrants Series 1.............................................. 142,395 November 2, 1994 Series 2.............................................. 35,599 December 31, 1996 Series 3.............................................. 35,599 December 31, 1997 Series 4.............................................. 53,397 December 31, 1998 ----------- Total issued and outstanding........................ 266,990 ----------- -----------
The Series 2, Series 3 and Series 4 Redeemable Warrants are cancellable if certain "Triggering Events", as defined below, occur prior to the warrants becoming exercisable. The Series 1 Redeemable Warrants to purchase 142,395 common shares are not cancellable and are exercisable at December 31, 1995 and September 30, 1996. The warrant holders are not entitled to receive any common stock cash dividends. When and if cash dividends are declared, the number of common shares subject to warrants and the per share exercise price is subject to adjustment. The warrants have voting rights unless cancelled in accordance with the terms of the warrant agreements. PUT OPTION Until December 31, 2000, the Senior Subordinated Lenders have the right, if a Triggering Event occurs and if the warrants are then exercisable, to require the Company to redeem all (or any portion) of the warrants issued and outstanding. If a Triggering Event does not occur, the Senior Subordinated Lenders have the right, only if the Senior Lenders elect (and are able) to exercise their respective Put Options, to require the Company to redeem all (or any portion) of their warrants as are issued and outstanding. After December 31, 2000, the Senior Subordinated Lenders have the unrestricted right to require the Company to redeem all (or any portion) of the warrants issued and outstanding. F-29 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) DEFINITIONS The following terms are defined in the warrant agreements: TRIGGERING EVENTS--Defined as payment in full of the Senior Subordinated Debt and either of the following: 1) the sale of all or substantially all of the Company's assets or stock for cash in an amount equivalent to a common stockholder equity valuation of $30,000,000 or more; or 2) an "Initial Public Offering." INITIAL PUBLIC OFFERING--Defined as a public offering of common stock with net proceeds of at least $25,000,000 and valuing the total common stock equity of the Company at $55,000,000 or more at closing. FORMER LENDER DEBT WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS In 1991, warrants were issued to a former senior subordinated lender (the "Former Lender") to purchase 18% of a subsidiary's common stock. The warrants were exchangeable at the option of the Former Lender for warrants to purchase that number of the Company's common shares which have an equivalent fair market value on the exchange date to the number of the subsidiary's common shares subject to the original warrants (subject to adjustment for anti-dilution). The warrants were recorded at $380,000, the estimated fair market value on the date of issuance. On November 2, 1994, the Former Lender exchanged its warrants for Redeemable Warrants to purchase 88,339 shares of the Company's common stock. In conjunction with the sales of Preferred Stock during 1994 and 1996 discussed in Note 15, the Former Lender was issued an additional 6,219 and 2,868 Redeemable Warrants, respectively, pursuant to the warrant agreement anti-dilution provisions. The Redeemable Warrants were exercisable as of their respective issuance dates and are not subject to cancellation. The Former Lender is entitled to receive common stock dividends, if declared, except such dividends are payable only upon exercise of the warrants and only with respect to number of shares exercised. The warrants do not have voting rights. PUT OPTION Until December 30, 2000, the Former Lender has the right, only if the Senior or Senior Subordinated Lenders or Series D Investors elect (and are able) to exercise their respective Put Options or if a Qualified Public Offering (as defined in the Senior Lenders' warrant agreements) has occurred, to require the Company to redeem all (or any portion) of the warrants or the shares issued upon exercise of the warrants. On December 31, 2000 and thereafter, the Former Lender has the unrestricted right to require the Company to redeem all (or any portion) of the warrants or the shares issued upon exercise of the warrants issued and outstanding. F-30 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) CONVERTIBLE SUBORDINATED NOTE WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS The Convertible Subordinated Note warrants to purchase 49,079 common shares are held by the Series D Investors and one of the Senior Subordinated Lenders (67% and 33%, respectively, and collectively referred to as Convertible Note Warrant Holders). The warrants were issued on September 18, 1996 in conjunction with the Company's sale of Convertible Notes and become exercisable on June 30, 1997 provided a "Convertible Notes IPO" (as defined below) shall not have occurred or the Convertible Notes shall not have been repaid in full. None were exercisable as of September 30, 1996. The warrants are cancelled upon repayment of the Convertible Notes with the proceeds from a "Registered Public Offering" (as defined below) or expire on December 31, 2006. The Convertible Note Warrant Holders are not entitled to receive any common stock cash dividends. When and if cash dividends are declared, the number of common shares subject to warrants and the per share exercise price is subject to adjustment. The warrants have voting rights unless cancelled in accordance with the terms of the warrant agreements. The warrant agreements provide for an increase in the number of common shares subject to the warrants if: 1) certain "Private Financing" (as defined below) or Registered Public Offering transactions, occur after June 30, 1997 but prior to the exercise date; or 2) interest on the Convertible Notes is deferred. The amount of the increase is a formula determined value based on the per share price of the financing transactions. No increase in the number of common shares is required provided the financing transactions result in a price in excess of $14.32 per share. PUT OPTION Until December 31, 2000, the Convertible Note Warrant Holders have the right, if a Registered Public Offering occurs and if the warrants are then exercisable, to require the Company to redeem all (or any portion) of the warrants issued and outstanding. If a Registered Public Offering does not occur, the warrant holders have the right, only if the Senior Lenders elect (and are able) to exercise their respective Put Options, to require the Company to redeem all (or any portion) of their warrants as are issued and outstanding. After December 31, 2000, warrant holders have the unrestricted right to require the Company to redeem all (or any portion) of the warrants issued and outstanding. DEFINITIONS The following terms are defined in the warrant agreements: CONVERTIBLE NOTES IPO--Defined as receipt by the Company from an underwriter, on or prior to June 30, 1997, of a firm commitment to underwrite a public offering for shares of the Company's common stock, which underwritten public offering shall close on or before July 11, 1997. PRIVATE FINANCING--Defined as any disposition by the Company or any selling stockholder of any equity security or convertible security of the Company other than pursuant to a Registered Public Offering. F-31 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) REGISTERED PUBLIC OFFERING--Defined as the closing of an underwritten public offering for the common stock of the Company. SERIES D PREFERRED STOCK WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS All of the Series D preferred stock warrants are held by the Series D Investors. The warrants were issued in several series on February 20, 1996 in conjunction with the Company's sale of Series D preferred shares. The following table summarizes the warrants issued and outstanding as of September 30, 1996:
NUMBER OF COMMON SHARES SUBJECT TO DATE WARRANTS WARRANTS BECOME EXERCISABLE ----------- ----------------------- Series of Redeemable Warrants Series 1.............................................. 55,605 December 31, 1997 Series 2.............................................. 55,605 December 31, 1998 Series 3.............................................. 83,408 December 31, 1999 ----------- Total issued and outstanding........................ 194,618 ----------- -----------
All series of Redeemable Warrants are cancellable if certain "Triggering Events", as defined below, occur prior to the warrants becoming exercisable. In addition, a portion of the Series 1 warrants are cancellable if one or more "Registered Public Offerings", as defined below, occurs prior to December 31, 1997 as summarized in the table below.
NUMBER OF COMMON SHARES SUBJECT TO WARRANTS ------------------------- CANCELLABLE REMAINING ------------ ----------- Provided that before December 31, 1997 no Triggering Events occur and: No Registered Public Offerings occur................................................. -- 55,605 A Registered Public Offering occurs with a fully diluted common stock equity value of (amounts subject to adjustment in certain circumstances) Greater than or equal to $60,000,000 but less than $65,000,000................... 13,901 41,704 Greater than or equal to $65,000,000 but less than $70,000,000................... 27,802 27,803 Greater than or equal to $70,000,000............................................. 41,704 13,901
The number of common shares subject to warrants is subject to further reduction when, and if, any portion of the Senior Subordinated Note warrants is cancelled pursuant to the terms of those warrant agreements. The warrant holders are not entitled to receive any common stock cash dividends. When and if cash dividends are declared, the number of common shares subject to warrants and the per share exercise price is subject to adjustment. The warrants have voting rights unless cancelled in accordance with the terms of the warrant agreements. F-32 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) PUT OPTION Until December 31, 2000, the Series D Investors have the right, only if any of the other Redeemable Warrant holders elect (and are able) to exercise their respective Put Options, to require the Company to redeem all (or any portion) of the warrants issued and outstanding. After December 31, 2000, the Series D Investors have the unrestricted right to require the Company to redeem all (or any portion) of the warrants issued and outstanding. DEFINITIONS The following terms are defined in the warrant agreements: TRIGGERING EVENTS--Defined as either of the following: 1) the sale of all or substantially all of the Company's assets or stock for cash in an amount equivalent to a common stockholder equity valuation of $60,000,000 or more; or 2) a Qualified (Series D Investors) Public Offering. REGISTERED PUBLIC OFFERINGS--Defined as the closing of underwritten public offerings with gross proceeds of at least $25,000,000 and valuing the fully diluted total common stock equity at an amount greater than or equal to $60,000,000 but less than $75,000,000. QUALIFIED (SERIES D INVESTORS) PUBLIC OFFERING--Defined as the closing of underwritten public offerings with gross proceeds of at least $25,000,000 and valuing the fully diluted total common stock equity at an amount equal to or greater than the "Minimum Equity Market Value", as defined below. MINIMUM EQUITY MARKET VALUE--Defined as: 1) for the period from February 20, 1996 through December 30, 1997--$75,000,000; 2) for the period from December 31, 1997 through December 30, 1998--$95,000,000; 3) for the period from December 31, 1998 through December 30, 1999-- $120,000,000. Antidilution provisions set forth in the warrant agreements require adjustment of the foregoing amounts. Through December 30, 1997, the adjusted Minimum Equity Market Value is approximately $86,000,000 to $93,000,000, depending on the impact of certain transactions. SERIES E PREFERRED STOCK WARRANTS DESCRIPTION OF REDEEMABLE WARRANTS The Series E Preferred Stock warrants to purchase 49,079 common shares are held by the Series D Investors and one of the Senior Subordinated Lenders (67% and 33%, respectively, and collectively referred to as Series E Warrant Holders). The warrants were issued on September 18, 1996 in conjunction with the Company's sale of Series E Preferred Stock and are exercisable as of September 30, 1996. The Series E Warrant Holders are not entitled to receive any common stock cash dividends. When and if cash dividends are declared, the number of common shares subject to warrants and the per share exercise price is subject to adjustment. The warrants have voting rights. The warrant agreements provide for an increase in the number of common shares subject to the warrants if certain "Private Financing" or "Registered Public Offering" transactions, as defined below, occur prior to the exercise date. The amount of the increase is a formula determined value based on the F-33 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED) per share price of the financing transactions. No increase in the number of common shares is required provided the financing transactions result in a price in excess of $14.32 per share. PUT OPTION Until December 31, 2000, the Series E Warrant Holders have the right, if a Registered Public Offering occurs and if the warrants are then exercisable, to require the Company to redeem all (or any portion) of the warrants issued and outstanding. If a Registered Public Offering does not occur, the warrant holders have the right, only if the Senior Lenders elect (and are able) to exercise their respective Put Options, to require the Company to redeem all (or any portion) of their warrants as are issued and outstanding. After December 31, 2000, warrant holders have the unrestricted right to require the Company to redeem all (or any portion) of the warrants issued and outstanding. DEFINITIONS The following terms are defined in the warrant agreements: PRIVATE FINANCING--Defined as any disposition by the Company or any selling stockholder of any equity security or convertible security of the Company other than pursuant to a Registered Public Offering. REGISTERED PUBLIC OFFERING--Defined as the closing of an underwritten public offering for the common stock of the Company. NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK At December 31, 1993, the Company's preferred shares were mandatorily redeemable at the option of the holders. In conjunction with the 1994 debt refinancing the Company's Articles of Incorporation were amended and the preferred stockholders' mandatory redemption rights were terminated. As a result, the Company's mandatorily redeemable preferred shares were reclassified in the consolidated financial statements to stockholders' equity (deficit). As of December 31, 1995, the number of preferred shares authorized to be issued included 167,702 Series A shares, 1,636,316 Series B shares, and 3,000,000 Series C shares. On January 31, 1996 and September 15, 1996, the Company's Articles of Incorporation were further amended to authorize the issuance of 2,000,000 Series D shares and 1,500,000 Series E shares, respectively. All preferred shares are without par value and each share is entitled to one vote for each common share which would be issuable upon conversion. F-34 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED) The table below summarizes preferred stock issued during the three year period ended December 31, 1995 and the nine month period ended September 30, 1996 (amounts in thousands):
SERIES A SERIES B SERIES C SERIES D SERIES E TOTAL ----------- ----------- ----------- ----------- ----------- --------- Balance, December 31, 1992 and December 31, 1993....................................... $ 168 $ 2,000 $ 3,000 $ -- $ -- $ 5,168 Issuance of 271,471 Series C preferred shares at $1.50 per share, net of issuance costs of $26,000................................. -- -- 381 -- -- 381 ----- ----------- ----------- ----------- ----------- --------- Balance, December 31, 1994 and December 31, 1995....................................... 168 2,000 3,381 -- -- 5,549 Issuance of 75,000 Series C preferred shares at $1.50 per share......................... -- -- 112 -- -- 112 Issuance of 2,000,000 Series D preferred shares as described below, net of issuance costs of $558,000.......................... -- -- -- 5,450 -- 5,450 Issuance of 750,000 Series E preferred shares as described below, net of issuance costs of $137,000................................ -- -- -- -- 2,739 2,739 ----- ----------- ----------- ----------- ----------- --------- Balance, September 30, 1996 (Unaudited)...... $ 168 $ 2,000 $ 3,493 $ 5,450 $ 2,739 $ 13,850 ----- ----------- ----------- ----------- ----------- --------- ----- ----------- ----------- ----------- ----------- ---------
The following table summarizes the number of preferred shares outstanding as of the dates indicated:
SERIES A SERIES B SERIES C SERIES D SERIES E TOTAL --------- ----------- ----------- ----------- --------- ----------- Number of shares outstanding as of December 31, 1992....................... 167,702 1,583,532 2,000,000 -- -- 3,751,234 December 31, 1993....................... 167,702 1,583,532 2,000,000 -- -- 3,751,234 December 31, 1994....................... 167,702 1,583,532 2,271,471 -- -- 4,022,705 December 31, 1995....................... 167,702 1,583,532 2,271,471 -- -- 4,022,705 September 30, 1996 (Unaudited).......... 167,702 1,583,532 2,346,471 2,000,000 750,000 6,847,705
Concurrent with the 1994 debt refinancing, 271,471 Series C preferred shares were issued to related parties consisting of 138,995 shares issued to certain common stockholders ("Investors") and 132,476 shares issued to the Senior Subordinated Debt Lenders. On February 9, 1996, certain members of Company management purchased for $112,000 an aggregate of 75,000 Series C preferred shares. On February 20, 1996, the Company sold 2,000,000 Series D preferred shares at $3.25 per share and issued Redeemable Warrants to purchase 194,618 common shares to the Series D Investors. Proceeds from the sale aggregating $492,000 were ascribed to the Redeemable Warrants to reflect their estimated fair market value on the issuance date. The proceeds from the sale were used to fund the Minority Interest Acquisition. F-35 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED) On September 18, 1996, the Company sold 750,000 Series E preferred shares at $4.00 per share and issued Redeemable Warrants to purchase 49,079 common shares to the Series D Investors and the Senior Subordinated Lenders. Proceeds from the sale aggregating $124,000 were ascribed to the Redeemable Warrants to reflect their estimated fair market value on the issuance date. The proceeds from the sale were used to fund the ADS Acquisition. Dividends are payable quarterly to the holders of preferred stock, when and if declared by the Board of Directors. Cash dividends at the annual rate of $.10, $.1263, $.15, $.325 and $.40 per share related to the Series A, Series B, Series C, Series D and Series E shares, respectively, accumulate from July 1, 1993 for the Series A and Series B shares, from July 1, 1994 for the Series C shares, from February 15, 1996 for the Series D shares and from September 15, 1996 for the Series E shares. All cumulative, unpaid dividends on the stock are to be cancelled and eliminated if the Company's common stock becomes registered in a public offering of common stock with gross proceeds of at least $10,000,000 at a per share price of not less than $15.87 on or before December 31, 1996. In January 1997, the holders of the preferred stock agreed to extend the cancellation date to May 5, 1997 and further, agreed to waive their right to receive all cumulative unpaid dividends, contingent on the consummation of the Offering. The Senior and Senior Subordinated Debt agreements prohibit the Company from paying dividends and, as a result, no dividend payments have been declared since issuance. Series A, Series B and Series C accumulated dividends in arrears aggregate $42,000 ($.249 per share), $499,000 ($.315 per share) and $511,000 ($.225 per share), respectively, as of December 31, 1995. Series A, Series B, Series C, Series D and Series E accumulated dividends in arrears aggregate $54,000 ($.324 per share), $648,000 ($.41 per share), $774,000 ($.341 per share), $407,000 ($.203 per share) and $12,000 ($.017 per share), respectively, as of September 30, 1996. Each share of preferred stock is convertible into .28357 of a share of common stock, subject to adjustment in certain circumstances. All cumulative unpaid dividends, if any, are payable upon conversion. Liquidation preference is equal to $1.00, $1.263, $1.50, $3.25 and $4.00 per share for the Series A, Series B, Series C, Series D and Series E shares, respectively, plus declared but unpaid dividends. The aggregate liquidation preference for all preferred stock, excluding accumulated dividends in arrears, is $5,575,000 and $15,187,000 as of December 31, 1995 and September 30, 1996, respectively. Payment of the Series D and Series E preferred stock per share liquidation preference, plus declared but unpaid dividends, is senior to the Series A, Series B and Series C preferred stock. Payment of the Series A, Series B and Series C preferred stock per share liquidation preference is pari passu to the Series A, Series B and Series C stockholders as a group; payment of declared but unpaid dividends are pro rata based on the relative proportion of the amounts accumulated but unpaid. Payment of the Series D and Series E preferred stock per share liquidation preference, plus declared but unpaid dividends, is pari passu to the Series D and Series E stockholders as a group. At December 31, 1995 and September 30, 1996, the Company had warrants outstanding to purchase a total of 52,784 Series B shares at an exercise price of $1.263 per share. The warrants were issued in 1990 and expire on April 15, 2001. At December 31, 1995 and September 30, 1996, a total of 52,787 authorized and unissued Series B shares were reserved for issuance upon exercise of the warrants. F-36 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 16--COMMON STOCK At December 31, 1994 and 1995, the Company was authorized to issue 2,268,560 common shares without par value (4,253,550 common shares at September 30, 1996). As of December 31, 1995, a total of 1,854,924 common shares were reserved for issuance upon exercise of all warrants and stock options and the conversion of the preferred stock (3,291,938 common shares at September 30, 1996, including common shares reserved for the conversion of Convertible Notes). At December 31, 1995 and September 30, 1996, in addition to the Redeemable Warrants, the Company had issued non-redeemable warrants to purchase a total of 9,355 common shares at an exercise price of $4.454 per share expiring on February 20, 2001. During 1993, the Company adopted a qualified stock option plan for key employees under which options to purchase 213,386 common shares may be granted. The plan permits the granting of incentive stock options, as defined by Section 422 of the Internal Revenue Code, non-qualified stock options, restricted stock options and stock appreciation rights. The plan expires in 2003. Options generally vest in equal installments over five years from the date of grant and remain exercisable until December 31, 2002. The following table summarizes stock option plan activity from inception of the plan through September 30, 1996 (the grant date and per share exercise price is parenthetically noted):
NUMBER OF OPTIONS ------------------------ AVAILABLE FOR GRANT OUTSTANDING ---------- ------------ Inception of plan...................................................................... 213,386 -- Granted (March 1993 at $.529 per share)................................................ (76,847) 76,847 Expired or cancelled................................................................... 8,932 (8,932) ---------- ------------ Options available for grant and outstanding, December 31, 1993......................... 145,471 67,915 Granted (February and November 1994 at $.529 per share)................................ (123,211) 123,211 Exercised.............................................................................. -- (2,269) Expired or cancelled................................................................... 3,828 (3,828) ---------- ------------ Options available for grant and outstanding, December 31, 1994......................... 26,088 185,029 Increase in number of shares authorized................................................ 32,469 -- Granted (February and March 1995 at $.529 per share)................................... (37,573) 37,573 Expired or cancelled................................................................... 14,179 (14,179) ---------- ------------ Options available for grant and outstanding, December 31, 1995......................... 35,163 208,423 Increase in number of shares authorized................................................ 141,785 -- Granted (4,254 shares in February 1996 at $.529 per share and 87,198 and 14,887 shares in September 1996 at $1.234 and $7.053 per share, respectively)...................... (106,339) 106,339 ---------- ------------ Options available for grant and outstanding, September 30, 1996 (Unaudited)............ 70,609 314,762 ---------- ------------ ---------- ------------
Options for 85,581 and 136,258 shares were exercisable as of December 31, 1995 and September 30, 1996, respectively. F-37 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 16--COMMON STOCK (CONTINUED) The Company believes the per share exercise price of options granted prior to September 1996 approximated the fair market value of the underlying common stock on the grant date. The exercise price of options granted in September 1996 was 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 $4,000 for the nine months ended September 30, 1996. The options vest each year on December 31st as follows: 1996--14,025 shares; 1997--15,954 shares; 1998--18,846 shares; 1999--18,988 shares; 2000--31,720 shares; 2001--2,552 shares. NOTE 17--COMMITMENTS AND CONTINGENCIES FORMER OWNER OF ACQUIRED BUSINESSES In October 1991, a subsidiary of the Company acquired, in a purchase transaction, the net assets and stock of several companies under common control for $13,192,000 in cash, including five year covenants not to compete entered into with the former owner (the "Former Owner"). The purchase agreements also provided for purchase price adjustments based on changes in working capital, a consulting services agreement and $15,000,000 of contingent consideration payable to the Former Owner based upon the acquired businesses' future attainment of defined performance criteria. Amounts due to (from) the Former Owner as of December 31, 1994 and 1995 included the following (amounts in thousands):
DECEMBER 31, -------------------- 1994 1995 --------- --------- Accrued consulting services due to the Former Owner........................ $ 650 $ 1,138 Receivables collected on behalf of the Former Owner........................ 777 783 Former Owner advances to an acquired business, prior to acquisition........ 135 153 Working capital adjustment................................................. (856) (856) Claims for breaches of representations and warranties...................... (976) (976) --------- --------- Due (from) to Former Owner, net.......................................... $ (270) $ 242 --------- --------- --------- ---------
The net amount due (from) to Former Owner is classified in the consolidated balance sheets as an other asset (non-current) as of December 31, 1994 and as an accrued liability as of December 31, 1995. Pursuant to the terms of the purchase agreements, the purchase price was subject to adjustment based on the change in working capital, as defined, from June 30, 1991 through October 15, 1991. As of December 31, 1994 and 1995, the Company had recorded $856,000 as receivable from the Former Owner pursuant to such working capital adjustment provisions. During the year ended December 31, 1993, the Company asserted claims aggregating $185,000 against the Former Owner for breach of representation and warranty provisions set forth in the purchase agreements. The Former Owner did not contest the claims and, as specified in the purchase agreements, the Company's claims were deemed accepted. The Company also reduced the amount due to F-38 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED) the Former Owner by $791,000 representing additional claims for breaches of representations and warranties of which $677,000 related to excess and obsolete inventory on hand at the date of acquisition. The purchase agreements provided that the Company may offset its contingent consideration payable, if any, and consulting services payments against amounts receivable from the Former Owner for working capital adjustments and claims under the purchase agreements for breach of the representation and warranty provisions. The purchase agreements provided for a maximum of $15,000,000 in contingent consideration to be paid to the Former Owner by the Company based on future attainment of defined performance criteria over a five year period ending December 31, 1996. For each of the years in the four year period ended December 31, 1995, the Company did not meet the performance criteria and, as a result, no additional consideration was due the Former Owner under this provision of the agreement. The remaining maximum amount of contingent consideration payable was $4,500,000 as of December 31, 1995. The Former Owner's consulting services agreement provided for advisory and consulting services, on an as needed basis, for a period of five years at an annual cost of $260,000. During the period from October 15, 1991 (acquisition date) through December 31, 1991, the Company paid $54,000 under the agreement. During the year ended December 31, 1992, the Company paid $130,000 to the Former Owner and withheld payment of the remaining $130,000 payable under the consulting agreement for 1992 and the entire amount payable for 1993, 1994 and 1995. Amounts so withheld are recorded as a reduction of amounts receivable from the Former Owner discussed above. As of December 31, 1995, the Company accrued the remaining $228,000 payable to the Former Owner under the agreement as no significant future services were anticipated and the Company did not believe it would derive any significant future benefit from the advisory and consulting services. In December 1994, the Company commenced two actions against the Former Owner. The first pertained to the Company's claims for breach of representation and warranty provisions of the purchase agreements. With this claim, the Company commenced arbitration proceedings, as provided for in the purchase agreements, seeking recovery of approximately $3,000,000 for breaches of various representations and warranty provisions. The Former Owner counterclaimed in the arbitration for an unspecified amount of damages for alleged breaches of the purchase agreements by the Company. Pursuant to the purchase agreements, the arbitration was to be conducted before a three-arbitrator panel. The panel had been selected and a hearing was scheduled for the second quarter of 1996. The second action, in which the Company filed a California Superior Court lawsuit, sought both damages and injunctive relief from the Former Owner related to violation of various covenants contained in the purchase agreements pertaining to non-compete and disclosure of confidential information. A hearing on the injunctive relief portion of this matter was scheduled for the second quarter of 1996. The damages portion of this matter was referred to the same arbitration panel hearing the representations and warranty claims. On June 25, 1996, the Company and the Former Owner settled substantially all claims which were the subject of the above pending arbitration and litigation. Under the terms of the settlement, the Former Owner paid $190,000 to the Company as consideration for both parties agreeing to release each other from all monetary claims and terminating all agreements and pending arbitration and litigation proceedings. The consolidated results of operations for the nine months ended September 30, 1996 include a F-39 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED) net gain of $157,000 recorded pursuant to the settlement agreement. The net gain reflects the write off of the net amount due to the Former Owner of $242,000 and the $190,000 received in cash, reduced by the write off of the remaining unamortized balances of non-compete agreements, which were terminated, and a litigation claim. Both parties also agreed that the Company's claim for injunctive relief from the Former Owner's alleged violation of various covenants contained in the purchase agreements related to non-compete and disclosure of confidential information would be decided by binding arbitration before a single arbitrator. The arbitrator is empowered to decide only the matter of injunctive relief; monetary claims for damages were resolved pursuant to the aforementioned settlement agreement. Management believes the ultimate disposition of the arbitration will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. MINORITY STOCKHOLDER In connection with the Company's 1991 acquisition of a subsidiary, put option and stock purchase agreements (collectively, the "Put Option Agreement") were entered into between the Company and the acquired company's 25% minority stockholder granting the Minority Stockholder the option of requiring the Company to purchase all minority shares. The Put Option Agreement expired unexercised on June 1, 1994. In December 1993, the Minority Stockholder filed a stockholders' derivative suit against the Company, certain wholly owned subsidiaries of the Company, a 75% owned subsidiary of the Company (the "Majority Owned Subsidiary") and certain current and former officers and directors of the wholly owned and Majority Owned subsidiaries. The derivative suit was dismissed in conjunction with the Company's acquisition of the Minority Stockholder's 25% interest on February 20, 1996 (Note 2). OTHER LITIGATION The Company and its subsidiaries are also involved in other routine legal and administrative proceedings incident to the normal conduct of business. Management believes the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. LEASE COMMITMENTS The Company leases certain facilities and equipment under various capital and operating leases. Certain leases require payment of property taxes and include escalation clauses. Future minimum F-40 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED) capital and operating lease commitments under non-cancelable leases are as follows as of December 31, 1995 (amounts in thousands):
CAPITAL OPERATING LEASES LEASES ----------- ----------- Year ending December 31, 1996.................................................................. $ 181 $ 1,254 1997.................................................................. 181 1,192 1998.................................................................. 136 1,142 1999.................................................................. 20 1,085 2000.................................................................. -- 1,030 2001 and thereafter................................................... -- 2,927 ----- ----------- Total minimum payments required....................................... 518 $ 8,630 ----------- ----------- Less: Amount representing future interest cost........................ (72) ----- Recorded obligation under capital leases............................ $ 446 ----- -----
Total rental expense charged to operations for the years ended December 31, 1993, 1994 and 1995 was $1,357,000, $1,373,000 and $1,531,000, respectively. During the nine months ended September 30, 1996, the Company leased additional equipment under capital and operating leases and assumed operating leases for facilities and equipment in conjunction with the ADS Acquisition. The lease terms range from one to five years and future minimum capital and operating lease commitments aggregate $264,000 and $880,000, respectively, over the lease terms. NOTE 18--CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION During the periods presented, the Company paid the following amounts in cash (amounts in thousands):
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) Interest.................................. $ 2,477 $ 3,049 $ 3,275 $ 2,082 $ 1,840 Income taxes (refunded ) paid............. (64) 33 33 28 47
F-41 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 18--CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES Certain noncash investing and financing transactions occurred during the periods presented, as follows (amounts in thousands):
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------- ---------------------- 1993 1994 1995 1995 1996 --------- --------- ----- ----- --------- (UNAUDITED) Debt incurred for the acquisition of machinery and equipment......................................... $ 494 $ 276 $ 33 $ 33 $ 484 Financing provided by sellers in connection with acquisitions...................................... -- -- -- -- 2,242 Liabilities assumed in ADS Acquisition.............. -- -- -- -- 750
F-42 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 19--FOREIGN OPERATIONS AND EXPORT REVENUES FOREIGN OPERATIONS The Company operates in one business segment--avionics components manufacturing and integration services. Domestic and foreign operations consist of (amounts in thousands):
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) Revenues Gross revenues United States...................................... $ 47,230 $ 46,207 $ 54,394 $ 41,299 $ 41,972 Western Europe..................................... 6,909 7,309 9,388 6,445 7,914 --------- --------- --------- --------- --------- Total gross revenues............................. 54,139 53,516 63,782 47,744 49,886 --------- --------- --------- --------- --------- Less interarea transfers United States...................................... (1,032) (721) (814) (671) (752) Western Europe..................................... (4,910) (5,703) (7,129) (4,799) (6,075) --------- --------- --------- --------- --------- Total interarea transfers........................ (5,942) (6,424) (7,943) (5,470) (6,827) --------- --------- --------- --------- --------- Net revenues United States...................................... 46,198 45,486 53,580 40,628 41,220 Western Europe..................................... 1,999 1,606 2,259 1,646 1,839 --------- --------- --------- --------- --------- Total net revenues............................... $ 48,197 $ 47,092 $ 55,839 $ 42,274 $ 43,059 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from operations United States........................................ $ 2,497 $ 1,494 $ 1,354 $ 1,894 $ 1,555 Western Europe....................................... 256 266 501 336 700 Interarea eliminations............................... 23 -- (20) -- (83) --------- --------- --------- --------- --------- Total income from operations....................... $ 2,776 $ 1,760 $ 1,835 $ 2,230 $ 2,172 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Consolidated assets United States........................................ $ 33,221 $ 36,008 $ 34,449 $ 35,184 $ 52,727 Western Europe....................................... 5,741 5,713 6,490 6,529 5,641 Interarea eliminations............................... (4,309) (4,036) (4,610) (4,636) (4,140) --------- --------- --------- --------- --------- Total consolidated assets.......................... $ 34,653 $ 37,685 $ 36,329 $ 37,077 $ 54,228 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Interarea sales are accounted for at prices which the Company believes would be equivalent to unaffiliated customer sales. Interarea transfers and eliminations reflect the shipment of raw component parts between areas. Operating income excludes net interest expense, other income (expense) and minority interests which are directly attributable to the related operations. Corporate assets are included with United States assets. F-43 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 19--FOREIGN OPERATIONS AND EXPORT REVENUES (CONTINUED) EXPORT REVENUES Consolidated revenues include export revenues of $7,655,000, $2,890,000 and $5,161,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $3,425,000 and $4,373,000 for the nine months ended September 30, 1995 and 1996, respectively. Export revenues are primarily derived from sales to customers located in Western Europe, the Far East and Canada. NOTE 20--EMPLOYEE BENEFIT PLANS The Company's Swiss subsidiary sponsors a defined contribution pension plan covering substantially all of its employees as required by Swiss law. Contributions and costs, which are shared equally by the Company and the employees, are determined as a percentage of each covered employees' salary. Company contributions and costs associated with the plan were $105,000, $100,000 and $148,000 for the years ended December 31, 1993, 1994 and 1995, respectively. Substantially all of the Company's domestic employees are eligible to participate in a 401(k) defined contribution plan (the "Plan"). Participation in the Plan is at the discretion of each individual employee who is eligible to participate. Each participating employee is permitted to make a contribution up to a maximum amount defined in the Plan. The Company and its subsidiaries may make periodic discretionary matching contributions to the Plan. No matching contributions were made to the plan during the years ended December 31, 1993, 1994 and 1995. The costs associated with administering the plan were not significant for any period presented. F-44 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 21--RELATED PARTY TRANSACTIONS The Company's transactions with related parties included in the consolidated financial statements are summarized in the table below (amounts in thousands):
DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) INVESTORS 14% demand notes Interest earned during the period................................. $ 135 $ 113 $ -- $ -- $ -- Amount repaid, including accrued interest, with proceeds from the 1994 debt refinancing........................................... -- 1,281 -- -- -- Purchase of 39,415 shares of Series C preferred stock at $5.29 per share............................................................. -- 208 -- -- -- SENIOR SUBORDINATED LENDERS Interest and advisory fees Earned during the period.......................................... -- 165 949 749 792 Accrued and payable as of period end.............................. -- 137 -- 210 210 Purchase of Convertible Notes, Series E preferred stock and Redeemable Warrants in conjunction with the ADS Acquisition....... -- -- -- -- 2,000 Fees and expenses earned -- Capitalized as deferred financing costs........................... -- 140 -- -- 18 Recorded as a reduction of gross proceeds from the sale of preferred shares................................................ -- -- -- -- 18 SERIES D INVESTORS Purchases of debt and equity securities Series D preferred stock and Redeemable Warrants in conjunction with Minority Interest Acquisition.............................. -- -- -- -- 6,500 Convertible Notes, Series E preferred stock and Redeemable Warrants in conjunction with the ADS Acquisition................ -- -- -- -- 4,000 Fees and expenses earned -- Capitalized as deferred financing costs........................... -- -- -- -- 37 Recorded as a reduction of gross proceeds from the sale of preferred shares................................................ -- -- -- -- 37 Convertible Notes interest earned................................... -- -- -- -- 16
F-45 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.) NOTE 21--RELATED PARTY TRANSACTIONS (CONTINUED) Each related party is described below and their fully diluted equity securities ownership percentage of the Company, as of December 31, 1995 and September 30, 1996, respectively, is computed based upon the issued and outstanding Convertible Notes (Note 8), Redeemable Warrants (Note 14), preferred stock and warrants (Note 15) and common stock and warrants (Note 16): INVESTORS--Own 58.4% and 32.2% of the Company's issued and outstanding equity securities at the respective dates and are represented on the Company's Board of Directors (Notes 14, 15 and 16). SENIOR SUBORDINATED LENDERS--Own 27.0% and 20.6% of the Company's issued and outstanding equity securities (including 8.1% acquired from an Investor in a private transaction in 1994) at the respective dates, are represented on the Company's Board of Directors, and provide a portion of the Company's Convertible Notes financing and the Subordinated Debt (Notes 8, 10, 14, 15 and 16). SERIES D INVESTORS--Own 0% and 36.1% of the Company's issued and outstanding equity securities at the respective dates, are represented on the Company's Board of Directors, and provide a portion of the Company's Convertible Notes financing (Notes 8, 14, 15 and 16). F-46 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Allard Industries, Inc. In our opinion, the accompanying balance sheets and the related statements of income and changes in owner's net investment and of cash flows present fairly, in all material respects, the financial position of Aerospace Display Systems, a division of Allard Industries, Inc., at December 31, 1994 and 1995 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Philadelphia, Pennsylvania August 2, 1996 F-47 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ----------------------- SEPTEMBER 1994 1995 18, 1996 ---------- ----------- ----------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents................................. $ 1 $ 1 $ 1 Accounts receivable, net.................................. 1,347 1,339 1,292 Inventories............................................... 2,520 2,961 3,273 Prepaid expenses.......................................... 15 27 47 ---------- ----------- ----------- Total current assets.................................... 3,883 4,328 4,613 Property and equipment, net................................. 221 328 319 Other assets................................................ 27 45 40 ---------- ----------- ----------- Total assets............................................ $ 4,131 $ 4,701 $ 4,972 ---------- ----------- ----------- ---------- ----------- ----------- LIABILITIES AND OWNER'S NET INVESTMENT Current liabilities Accounts payable.......................................... $ 409 $ 597 $ 405 Accrued expenses.......................................... 278 281 246 ---------- ----------- ----------- Total current liabilities............................... 687 878 651 Commitments and contingencies (Note 9) Owner's net investment...................................... 3,444 3,823 4,321 ---------- ----------- ----------- Total liabilities and owner's net investment............ $ 4,131 $ 4,701 $ 4,972 ---------- ----------- ----------- ---------- ----------- -----------
The accompanying notes are an integral part of the financial statements. F-48 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) STATEMENTS OF INCOME (IN THOUSANDS)
PERIOD FROM YEAR ENDED NINE MONTHS JANUARY 1 DECEMBER 31, ENDED TO ------------------------------- SEPTEMBER 30, SEPTEMBER 18, 1993 1994 1995 1995 1996 --------- --------- --------- --------------- --------------- (UNAUDITED) Revenues......................................... $ 8,859 $ 8,259 $ 9,952 $ 7,649 $ 7,706 Cost of sales.................................... 6,483 6,192 6,594 5,154 4,855 --------- --------- --------- ------- ------- Gross profit................................... 2,376 2,067 3,358 2,495 2,851 Selling, general and administrative expenses..... 1,642 1,516 1,991 1,454 1,286 --------- --------- --------- ------- ------- Income from operations......................... 734 551 1,367 1,041 1,565 Interest expense................................. 209 204 150 122 52 --------- --------- --------- ------- ------- Income before provision for income taxes....... 525 347 1,217 919 1,513 Provision for income taxes....................... 207 141 495 374 615 --------- --------- --------- ------- ------- Net income..................................... $ 318 $ 206 $ 722 $ 545 $ 898 --------- --------- --------- ------- ------- --------- --------- --------- ------- -------
The accompanying notes are an integral part of the financial statements. F-49 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) STATEMENTS OF CHANGES IN OWNER'S NET INVESTMENT (IN THOUSANDS)
YEAR ENDED PERIOD FROM DECEMBER 31, JANUARY 1 ------------------------------- TO 1993 1994 1995 SEPTEMBER 18, --------- --------- --------- 1996 --------------- (UNAUDITED) Owner's net investment at beginning of period..................... $ 3,438 $ 3,189 $ 3,444 $ 3,823 Net income........................................................ 318 206 722 898 Net change in interdivision payables and other borrowings......... (567) 49 (343) (400) --------- --------- --------- ------- Owner's net investment at end of period........................... $ 3,189 $ 3,444 $ 3,823 $ 4,321 --------- --------- --------- ------- --------- --------- --------- -------
The accompanying notes are an integral part of the financial statements. F-50 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM YEAR ENDED NINE MONTHS JANUARY 1 DECEMBER 31, ENDED TO ------------------------------- SEPTEMBER 30, SEPTEMBER 18, 1993 1994 1995 1995 1996 --------- --------- --------- ----------------- --------------- (UNAUDITED) Cash flows from operating activities Net income......................................... $ 318 $ 206 $ 722 $ 545 $ 898 Adjustments to reconcile net income to net cash provided by (used for) operating activities Depreciation..................................... 16 33 49 35 51 Changes in assets and liabilities Accounts receivable............................ 277 (71) 8 (177) 47 Inventories.................................... 200 (201) (441) (86) (312) Prepaid expenses............................... 7 16 (12) (12) (20) Other assets................................... 15 -- (18) (4) 5 Accounts payable and accrued expenses.......... (193) 86 191 111 (227) --------- --------- --------- --- ------ Net cash provided by operating activities.... 640 69 499 412 442 --------- --------- --------- --- ------ Cash flows from investing activities Capital expenditures............................... (72) (118) (156) (115) (42) --------- --------- --------- --- ------ Net cash used in investing activities........ (72) (118) (156) (115) (42) --------- --------- --------- --- ------ Cash flows from financing activities (Decrease) increase in interdivision payables and other borrowings................................... (567) 49 (343) (297) (400) --------- --------- --------- --- ------ Net cash (used in) provided by financing activities................................. (567) 49 (343) (297) (400) --------- --------- --------- --- ------ Net increase in cash and cash equivalents............ 1 -- -- -- -- Cash and cash equivalents at beginning of the period............................................. -- 1 1 1 1 --------- --------- --------- --- ------ Cash and cash equivalents at end of period........... $ 1 $ 1 $ 1 $ 1 $ 1 --------- --------- --------- --- ------ --------- --------- --------- --- ------ Supplemental disclosure of cash flow information-- Cash paid during the period for interest........... $ 209 $ 199 $ 157 $ 127 $ 60 --------- --------- --------- --- ------ --------- --------- --------- --- ------
The accompanying notes are an integral part of the financial statements. F-51 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS Aerospace Display Systems ("ADS" or the "Division") located in Hatfield, Pennsylvania is a division of Allard Industries, Inc. ("Allard") and was acquired from the BF Goodrich Company ("BF Goodrich") in a purchase transaction in December 1992. ADS designs and manufactures dichroic liquid crystal displays ("LCDs") and modules for both military and commercial aerospace applications for the domestic and foreign aircraft industry, principally in North America and Europe. On July 26, 1996 Allard entered into an agreement to sell certain assets and the business of the Division to a subsidiary of DeCrane Aircraft Holdings, Inc. (Note 10). BASIS OF PRESENTATION Preparation of these financial statements in conformity with generally accepted accounting principles requires the Division to make estimates and assumptions that affect the reported amounts on the balance sheets, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The statements of income and changes in owner's net investment includes all charges applicable to the Division. Allard provides certain services to, and incurs costs on behalf of, the Division. All of the allocations and estimates in the financial statements are based on assumptions that the Division and Allard believe are reasonable. The financial information as of September 18, 1996 and for the nine months ended September 30, 1995 and for the period from January 1 to September 18, 1996 is unaudited. In the opinion of the Division, the unaudited financial information is presented on a basis consistent with the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods presented. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. INVENTORIES Inventories are stated principally at the lower of cost or market, as determined under the last-in, first-out ("LIFO") method. Costs include materials, labor and manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using straight-line and accelerated methods over their estimated useful lives, ranging from four to fifteen years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or remaining lease term, whichever is less. Expenditures for maintenance and repairs are expensed as incurred. The cost of improvements are capitalized. Upon retirement or disposal, the cost and accumulated depreciation of property and equipment are reduced and any gain or loss is recorded in income or expense. F-52 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The taxable income of the Division is included in the consolidated tax return of Allard. As such, separate income tax returns were not prepared or filed by the Division. The provision for income taxes included in these financial statements has been calculated as if the Division was a tax paying entity, using Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the liability method specified in SFAS 109, a deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in the liability for deferred taxes. REVENUE RECOGNITION Revenues from the sale of manufactured products are recorded when products are shipped. STATEMENT OF CASH FLOWS For purposes of the statement of cash flows, cash equivalents include short-term, highly liquid investments with original maturities of three months or less. ACCOUNTS RECEIVABLE Accounts receivable is net of an allowance for doubtful accounts of $28,000 at December 31, 1994 and 1995 (none at September 18, 1996). NOTE 2--INVENTORIES Inventories are comprised of the following (amounts in thousands):
DECEMBER 31, ----------------------------- SEPTEMBER 18, 1994 1995 1996 ------------ -------------- -------------- (UNAUDITED) Raw material................................. $ 832 $ 977 $ 1,260 Work-in process.............................. 655 533 560 Finished goods............................... 1,033 1,451 1,453 ------------ ------- ------- Total inventories.......................... $ 2,520 $ 2,961 $ 3,273 ------------ ------- ------- ------------ ------- -------
The division uses the last-in, first-out method ("LIFO") for valuing its inventory. If the first-in, first-out ("FIFO") method had been used, inventories would have been higher than reported by $33,000, $29,000 and $29,000 at December 31, 1994 and 1995 and September 18, 1996, respectively. F-53 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 3--PROPERTY AND EQUIPMENT Property and equipment includes the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 18, 1994 1995 1996 --------- --------- --------------- (UNAUDITED) Machinery and equipment...................................... $ 214 $ 354 $ 380 Computer equipment, furniture and fixtures................... 45 45 61 Leasehold improvements....................................... 12 26 26 --------- --------- ------ Total cost................................................. 271 425 467 Accumulated depreciation................................... (50) (97) (148) --------- --------- ------ Net property and equipment............................... $ 221 $ 328 $ 319 --------- --------- ------ --------- --------- ------
The acquisition of the Division in December 1992 from BF Goodrich was a bargain purchase transaction and as a result, all property and equipment was recorded at $0 at the date of the acquisition. Depreciation expense related to capital expenditures subsequent to the purchase transaction amounted to $16,000, $33,000 and $49,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $35,000 and $51,000 for the nine months ended September 30, 1995 and the period from January 1 to September 18, 1996, respectively. NOTE 4--RELATED PARTY TRANSACTIONS NOTES PAYABLE The Division's cash requirements were met by funds generated from operations, supplemented as necessary by advances or borrowings from Allard. Borrowings from Allard were made pursuant to unwritten, informal arrangements. Interest was charged to the Division as the Division's share of Allard interest expense based on the Division's proportionate share of total Allard borrowings. Interest expense was $209,000, $204,000 and $150,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $122,000 and $52,000 for the nine months ended September 30, 1995 and the period from January 1 to September 18, 1996, respectively. Amounts payable to Allard are classified with owner's net investment in the accompanying balance sheets. CORPORATE EXPENSES The results of operations include significant transactions with Allard business units that are outside of the Division's operations. These transactions involve functions and services (such as executive management, cash management, tax administration and strategic planning) that were provided to the Division by these other Allard units. The payroll cost of these functions and services has been allocated to the Division based on Allard management's estimated proportionate level of effort in servicing the Division. Other costs of these functions and services have been allocated to the Division based on its revenues in proportion to other Allard divisions. Allard and the Division's management believe this allocation methodology is reasonable. Corporate charges were $345,000, $264,000 and $360,000 for the years ended December 31, 1993, 1994, and 1995, respectively, and $240,000 and $301,000 for the F-54 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED) nine months ended September 30, 1995 and the period from January 1 to September 18, 1996, respectively. PURCHASES Purchases by the Division from other divisions of Allard were $347,000, $468,000 and $440,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $307,000 and $227,000 for the nine months ended September 30, 1995 and the period from January 1 to September 18, 1996, respectively. NOTE 5--PENSION PLAN Allard has a defined contribution 401(k) plan in which substantially all employees of the Division may participate. Under this plan, employees may make voluntary contributions of their compensation. The Division may make periodic discretionary matching contributions to the plan. No matching contributions were made to the plan during the years ended December 31, 1993, 1994 and 1995. NOTE 6--CONCENTRATION OF CREDIT RISK AND OTHER INFORMATION The Division's sales are made principally to commercial OEM customers, airlines and U.S. government subcontractors. Sales to U.S. government subcontractors amounted to approximately $4,291,000, $3,869,000 and $3,454,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $2,962,000 and $2,917,000 for the nine months ended September 30, 1995 and the period from January 1 to September 18, 1996, respectively. The Division is potentially subject to concentrations of credit risk as the Division relies heavily on customers operating in the domestic and foreign commercial aircraft industry. Generally, the Division does not require collateral or other security to support accounts receivable subject to credit risk. Under certain circumstances, deposits or cash on delivery terms are required. The Division maintains reserves for potential credit losses. Certain customers each accounted for more than 10% of the Division's revenues, as follows:
PERIOD FROM YEAR ENDED NINE MONTHS JANUARY 1 DECEMBER 31, ENDED TO ------------------------------------- SEPTEMBER 30, SEPTEMBER 18, 1993 1994 1995 1995 1996 ----- ----- ----- ------------------- ------------------- (UNAUDITED) Customer A........................... 16% 12% 10% 11% 7% Customer B........................... 13% 10% 8% 9% 9% Customer C........................... 18% 3% 10% 10% 13% Customer D........................... 6% 10% 9% 9% 6% -- -- -- -- -- Total.............................. 53% 35% 37% 39% 35% -- -- -- -- -- -- -- -- -- --
F-55 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 6--CONCENTRATION OF CREDIT RISK AND OTHER INFORMATION (CONTINUED) Complete loss of any of these customers could have an adverse impact on the future results of operations. Revenues include export revenues, principally to Western Europe, of $1,030,000, $1,930,000 and $1,623,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $1,513,000 and $1,289,000 for the nine months ended September 30, 1995 and the period from January 1 to September 18, 1996, respectively. NOTE 7--ACCRUED EXPENSES Accrued expenses are comprised of the following (amounts in thousands):
DECEMBER 31, -------------------- SEPTEMBER 18, 1994 1995 1996 --------- --------- ----------------- (UNAUDITED) Salaries, wages and compensated absences and payroll related taxes...................................................... $ 113 $ 116 $ 171 Commissions.................................................. 43 40 34 Warranty..................................................... 70 82 15 Other accrued expenses....................................... 52 43 26 --------- --------- ----- Total accrued expenses..................................... $ 278 $ 281 $ 246 --------- --------- ----- --------- --------- -----
NOTE 8--INCOME TAXES The provisions for income taxes are as follows (amounts in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Current U.S. federal....................................................... $ 119 $ 16 $ 355 State.............................................................. 31 5 116 --------- --------- --------- Total current.................................................... 150 21 471 --------- --------- --------- Deferred U.S. federal....................................................... 43 90 18 State.............................................................. 14 30 6 --------- --------- --------- Total deferred................................................... 57 120 24 --------- --------- --------- Total provision................................................ $ 207 $ 141 $ 495 --------- --------- --------- --------- --------- ---------
F-56 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 8--INCOME TAXES (CONTINUED) Deferred tax liabilities (assets) are comprised of the following (amounts in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Gross deferred tax liabilities Inventory........................................................ $ 341 $ 341 $ 341 Other............................................................ 18 18 18 --------- --------- --------- Gross deferred tax liabilities................................. 359 359 359 --------- --------- --------- Gross deferred tax (assets) Fixed assets..................................................... (233) (127) (59) Accrued expenses................................................. (63) (55) (59) Other............................................................ (22) (16) (56) --------- --------- --------- Gross deferred tax (assets).................................... (318) (198) (174) --------- --------- --------- Net deferred tax liability................................... $ 41 $ 161 $ 185 --------- --------- --------- --------- --------- ---------
The net deferred tax liability has been included in owner's net investment in each period. Income taxes currently payable, and deemed remitted by the Division to Allard, amounted to $150,000, $22,000 and $471,000 for the years ended December 31, 1993, 1994 and 1995, respectively. The provision for income tax differs from the amount of income tax determined by applying the applicable U.S. statutory federal rate to the income before income taxes as a result of the following differences (amounts in thousands):
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 --------- --------- --------- Income tax at U.S. statutory rates................................... $ 179 $ 118 $ 414 State income taxes, net of federal benefit........................... 28 23 80 Other, net........................................................... -- -- 1 --------- --------- --------- Income tax at effective rates...................................... $ 207 $ 141 $ 495 --------- --------- --------- --------- --------- ---------
F-57 AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) NOTE 9--COMMITMENTS AND CONTINGENCIES The Division has entered into certain operating leases which require minimum annual payments as follows: 1996--$193,000; 1997--$194,000; 1998--$184,000; 1999--$139,000, and 2000--$15,000. The total rental expense for all operating leases was $238,000, $166,000 and $181,000 for the years ended December 31, 1993, 1994 and 1995, respectively. The Division is also subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a material adverse effect on the financial position, results of operations or cash flows of the Division. NOTE 10--EVENT SUBSEQUENT TO REPORT OF INDEPENDENT ACCOUNTANTS (UNAUDITED) On September 18, 1996, a subsidiary of DeCrane Aircraft Holdings, Inc. consummated the purchase from Allard of the assets, subject to the liabilities, of the Division. F-58 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 7 Recent Developments....................................................... 12 Use of Proceeds........................................................... 14 Dividend Policy........................................................... 14 Capitalization............................................................ 15 Dilution.................................................................. 16 Selected Consolidated Financial Data...................................... 17 Unaudited Pro Forma Consolidated Financial Data........................... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 23 Business.................................................................. 29 Management................................................................ 45 Principal Stockholders.................................................... 51 Certain Transactions...................................................... 52 Description of Capital Stock.............................................. 53 Shares Eligible for Future Sale........................................... 58 Underwriting.............................................................. 59 Legal Matters............................................................. 60 Experts................................................................... 60 Additional Information.................................................... 60 Index to Financial Statements............................................. F-1
-------------------------- UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH THIS RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. SHARES [LOGO] DECRANE AIRCRAFT HOLDINGS, INC. COMMON STOCK SCHRODER WERTHEIM & CO. DEAN WITTER REYNOLDS INC. , 1997 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemization of all estimated expenses incurred or expected to be incurred by the Registrant in connection with the issuance and distribution of the securities being registered hereby, other than underwriting discounts and commissions.
ITEM AMOUNT - --------------------------------------------------------------------------------- ----------- SEC Registration Fee............................................................. $ 13,068 NASD Filing Fee.................................................................. Nasdaq National Marketing Listing Fee............................................ Blue Sky Filing Fees and Expenses................................................ Printing and Engraving Costs..................................................... Transfer Agent Fees.............................................................. Legal Fees and Expenses.......................................................... Accounting Fees and Expenses..................................................... Miscellaneous.................................................................... ----------- Total........................................................................ $ ----------- -----------
- ------------------------ * To be filed by amendment. All amounts are estimated except for the SEC Registration Fee, the NASD Filing Fee and the NASDAQ National Market Listing Fee. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Certificate of Incorporation contains a provision eliminating or limiting director liability to the Company and its stockholders for monetary damages arising from acts or omissions in the director's capacity as a director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the Delaware statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of the Company protection against awards of monetary damages resulting from breaches of their duty of care (except as indicated above). As a result of this provision, the ability of the Company or a stockholder thereof to successfully prosecute an action against a director for breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or recision based upon a director's breach of his duty of care. The Commission has taken the position that the provision will have no effect on claims arising under the Federal securities laws. In addition, the Certificate of Incorporation and the Company's Bylaws provide for mandatory indemnification rights, subject to limited exceptions, to any director or executive officer of the Company who by reason of the fact that he or she is a director or officer of the Company, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director or officer in advance of the final disposition of such proceeding in accordance with the applicable provisions of GCLSD. The Company may from time to time agree to provide similar indemnifications to certain employees and other agents. The Company also maintains directors' and officers' liability insurance. II-1 In addition, the Underwriting Agreement provides for indemnification by the Underwriters of the Registrant, its directors and officers against certain liabilities, including liabilities under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (1) Pursuant to a Securities Purchase Agreement dated November 2, 1994 and Electra Investment Trust P.L.C. and Electra Associates, Inc (collectively, "Electra") and DSV Partners, the Company sold 271,471 shares of Series C preferred stock for a purchase price of $1.50 per share. The sale of these securities was exempt from registration pursuant to Section 4(2) of the Act. (2) Pursuant to an Amended and Restated Credit Agreement dated as of November 2, 1994 among the Company, Provident Bank ("Provident") and Internationale Nederlanden (U.S.) Capital Corporation ("ING), the Company issued warrants to purchase an aggregate of 84,748 shares of Common Stock in connection with the amendment and restatement of the Company's credit agreement. Also in connection with the Amended and Restated Credit Agreement the Company issued warrants to purchase an aggregate of 94,558 shares of Common Stock to a former lender to the Company. The issuance of these securities was exempt from registration pursuant to Section 4(2) of the Act. (3) Pursuant to a Securities Purchase Agreement dated as of November 2, 1994 among the Company and Electra, the Company issued for a purchase price of $7.0 million (i) 12% Senior Subordinated Notes due December 31, 2001 having an aggregate principal amount of $7.0 million, and (ii) warrants to purchase 266,990 shares of Common Stock. The issuance of these securities was exempt from registration pursuant to Section 4(2) of the Act. (4) Pursuant to a Securities Purchase Agreement dated as of February 20, 1996 among the Company, Nassau Capital Partners, L.P. and NAS Partners I, L.L.C., the Company issued an aggregate purchase price of $6.5 million (i) 2,000,000 shares of Series D Preferred Stock, and (ii) warrants to purchase 194,618 shares of Common Stock. The issuance of these securities was exempt from registration pursuant to Section 4(2) of the Act. (5) On January , 1994 the Company sold 2,269 shares of Common Stock for $.53 per share to John Schnepf. Such securities were sold pursuant to the exercise of stock options. (6) Pursuant to a Securities Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles Becker, Robert Rankin and John Hinson the Company sold 75,000 shares of Series C preferred stock for a purchase price of $1.50 per share. The sale of these securities was exempt from registration pursuant to Section 4(2) of the Act. (7) Pursuant to a Securities Purchase Agreement dated September 18, 1996 among the Company, Nassau the Company sold (i) $2.0 million aggregate principal amount of 15% convertible Notes and 49,079 warrants to purchase Common Stock for a purchase price of $3.0 million, and (ii) 750,000 shares of Series E Preferred Stock and 49,079 warrants to purchase Common Stock for a purchase price of $3.0 million. The issuance of such securities was exempt from registration under Section 4(2) of the Act. (8) Pursuant to an Amended and Restated Credit Agreement dated as of September 18, 1996 among the Company, Provident and Internationale Nederlanden (U.S.) Capital Corporation., ING and Provident Bank, the Company issued 70,892 warrants to purchase Common Stock as additional consideration for amendments to documents governing certain indebtedness of the Company. The issuance of these securities was exempt from registration pursuant to Section 4(2) of the Act. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS 1.1 Form of Underwriting Agreement 1.2 Form of Agreement Among Underwriters* 3.1 Certificate of Incorporation of Registrant* 3.2 Bylaws of Registrant* 4.1 Specimen Certificate* 5.1 Opinion of Spolin & Silverman (re legality)* 10.1 1993 Share Incentive Plan 10.2 Tax Sharing Agreement dated March 15, 1993 between the Company TSH and Hollingsead International, Inc. 10.3 Employment Agreement dated September 1, 1994 between the Company and R. Jack DeCrane 10.4 Employment Agreement dated June 28, 1993 between the Company and R. G. MacDonald 10.5 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the Allard Children's Trust f/b/o John R. Allard 10.6 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the Allard Children's Trust f/b/o Michael E. Allard 10.7 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Younes Nazarian 10.8 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and David and Angela Nazarian, Trustees of the Nazarian Family Trust 10.9 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Gerald R. Allard, Trustee of the Gerald R. Allard Revocable Trust of 1994 10.10 Registration Rights Agreement dated January , 1997 among the Company, Banc One Capital Partners Corporation, Brantley Venture Partners II, L.P., R. Jack DeCrane, DSV Parnters, IV, Electra Investment Trust, P.L.C., Internationale Nederlanden (U.S.) Capital Corporation, Electra Associates, Inc., The Provident Bank, Nassau Capital Partners L.P., NAS Partner I L.L.C.* 10.11 Shareholders Agreement dated January , 1997 among the Company, Banc One Capital Partners Corporation, Brantley Venture Partners II, L.P., R. Jack DeCrane, DSV Partners, IV, Electra Investment Trust, P.L.C., Internationale Nederlanden (U.S.) Capital Corporation, Electra Associates, Inc., The Provident Bank, Nassau Capital Partners L.P., NAS Partner I L.L.C.* 10.12 Lease dated September 1989 as amended on December 15, 1993 among Continental Development Corporation, Tri-Star Electronics, Inc., and Cory Components, Inc. for real property in El Segundo, CA 10.13 Amended and Restated Credit Agreement, dated September 18, 1996, among the Comapny, ADS Acquisition, Inc., Tri-Star Holdings, Inc., Tri-Star Electronics International, Inc., Tri-Star Technologies, Inc., Tri-Star Technologies, Tri-Star Electronics Europe S.A., Mezzovico, Cory Holdings, Inc., Cory Components, Inc., Hollingsead International, Inc., Hollingsead International Limited, The Provident Bank, and Internationale Nederlanden (U.S.) Capital Corporation.
II-3 10.14 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components, Number 6-5752-0002 10.15 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory Components, Number 6-5752-0004 10.16 Purchase Agreement 9423JC4548 between Boeing Defense & Space-Irving Co. and Cory Components, January 1, 1995 through December 31, 1999 10.17 Electrical Contact Procurement Contract Letter of Agreement, dated June 28, 1993 between Boeing Commercial Airplane Group and Tri-Star Electronics International 10.18 Asset Purchase and Sale Agreement by and among Allard Industries, Inc., Gerald R. Allard, Trustee of the Gerald R. Allard Revocable Trust of 1994, The Allard Children's Trust f/b/o John Allard, The Allard Children's Trust f/b/o Michael E. Allard, Younes Nazarian and David and Angela Nazarian, Trustees of the Nazarian Family Trust, the principal shareholders of Allard, the Company and ADS Acquisition, Inc. 10.19 Assets Purchase and Sale Agreement dated December 4, 1996 among the Company, EE Acquisition, Inc., William Lyon, and Elsinore LP 10.20 Asset Purchase and Sale Agreement dated November 25, 1996 among AMP, Incorporated, the Whitaker Corporation and DeCrane Aircraft Holdings, Inc. 10.21 Stock Purchase Agreement, dated January 1, 1995, among the Company and Cory Components, Inc. 10.22 Securities Purchase Agreement, dated September 18, 1996 among the Company, Nassau Capital Partners L.P., NAS Partners I L.L.C., and Electra Investment Trust P.L.C. 10.23 Securities Purchase Agreement, dated February 20, 1996 among the Company, Nassau Capital Partners L.P. and NAS Partners I L.L.C. 10.24 Securities Purchase Agreement dated November 2, 1994, as amended on February 20, 1996, among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. 10.25 Letter Agreement dated November 24, 1994 between the Company and Charles Becker 10.26 Warrant Agreement dated November 2, 1994 between the Company and Internationale Nederlanden (U.S.) Capital Corporation 10.27 Form of Warrant Agreement relating to the Company's Series E Warrants 10.28 Form of Warrant Agreement relating to the Company's Series F Warrants 10.29 Form of Warrant Agreement relating to the Company's Series G Warrants 10.30 Form of Warrant Agreement relating to the Company's Series H Warrants 10.31 Share Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles Becker, Robert Rankin 11.1 Statement regarding computation of per share earnings of the Company 21.1 List of Subsidiaries of Registrant 23.1 Consent of Price Waterhouse, LLP 23.2 Consent of Spolin & Silverman (included in Exhibit 5.1)* 24.1 Power of Attorney (appears on signature page) 27 Financial Data Schedule
- ------------------------ * To be filed by amendment. II-4 (b) FINANCIAL STATEMENT SCHEDULE: Schedule II--Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to provide to the Underwriters at the Closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES This Registration Statement and Power of Attorney, pursuant to the requirements of the Securities Act of 1933, as amended, have been signed on its behalf by the undersigned, thereunto duly authorized, in the State of California, on this 16th day of January, 1997. DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. JACK DECRANE ------------------------------------------ Name: R. Jack DeCrane Title:Chairman of the Board and Chief Executive POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints R. Jack DeCrane, R.G. MacDonald and Robert A. Rankin, and each of them, his true and lawful attorneys-in-fact and agents, with the full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and to take such actions in, and file with the appropriate authorities in, whatever states said attorneys-in-fact and agents, and each of them, shall determine, such applications, statements, consents and other documents as may be necessary or expedient to register securities of the Company for sale, granting unto said attorneys-in-fact and agents full power and authority to do so and perform each and ever act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof and the registrant hereby confers like authority on its behalf. This Registration Statement and Power of Attorney, pursuant to the requirement of the Securities Act of 1933, as amended, have been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE - ----------------------------------- ------------------------- -------------------- /s/ R. JACK DECRANE Chairman of the Board, - ----------------------------------- Chief Executive Officer January 16, 1997 R. Jack DeCrane and Director /s/ R. G. MACDONALD Vice Chairman of the - ----------------------------------- Board and Director January 16, 1997 R. G. MacDonald Chief Financial Officer /s/ ROBERT A. RANKIN and Secretary - ----------------------------------- (principal accounting January 16, 1997 Robert A. Rankin officer) /s/ JAMES R. BERGMAN - ----------------------------------- Director January 16, 1997 James R. Bergman
II-6
SIGNATURE CAPACITY DATE - ----------------------------------- ------------------------- -------------------- /s/ PAUL H. CASCIO - ----------------------------------- Director January 16, 1997 Paul H. Cascio /s/ JONATHAN A. SWEEMER - ----------------------------------- Director January 16, 1997 Jonathan A. Sweemer
II-7 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BEGINNING OF COST AND CHARGED TO BALANCE AT CLASSIFICATIONS PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD - --------------------------------------- ------------- ----------- --------------- ----------- ------------- YEAR ENDED DECEMBER 31, 1993 Allowance for Doubtful Accounts........ $ 475,000 -- -- $ 155,000 $ 320,000 Reserve for excess, slow moving and potentially obsolete material........ $ 466,000 $ 127,000 -- -- $ 593,000 YEAR ENDED DECEMBER 31, 1994 Allowance for Doubtful Accounts........ $ 320,000 $ 51,000 $ 3,000(A) $ 131,000 $ 243,000 Reserve for excess, slow moving and potentially obsolete material........ $ 593,000 $ 300,000 -- -- $ 893,000 YEAR ENDED DECEMBER 31, 1995 Allowance for Doubtful Accounts........ $ 243,000 $ 66,000 $ 62,000(B) $ 112,000 $ 259,000 Reserve for excess, slow moving and potentially obsolete material........ $ 893,000 $ 416,000 -- $ 155,000 $ 1,154,000
- ------------------------ (A) Effect of foreign currency translation. (B) Comprised of the following: $ 3,000 Effect of foreign currency translation; $59,000 Recovery of amounts previously written off. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------ ----- 1.1 Form of Underwriting Agreement 1.2 Form of Agreement Among Underwriters* 3.1 Certificate of Incorporation of Registrant* 3.2 Bylaws of Registrant* 4.1 Specimen Certificate* 5.1 Opinion of Spolin & Silverman (re legality)* 10.1 1993 Share Incentive Plan 10.2 Tax Sharing Agreement dated March 15, 1993 between the Company TSH and Hollingsead International, Inc. 10.3 Employment Agreement dated September 1, 1994 between the Company and R. Jack DeCrane 10.4 Employment Agreement dated June 28, 1993 between the Company and R. G. MacDonald 10.5 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the Allard Children's Trust f/b/o John R. Allard 10.6 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the Allard Children's Trust f/b/o Michael E. Allard 10.7 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Younes Nazarian 10.8 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and David and Angela Nazarian, Trustees of the Nazarian Family Trust 10.9 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Gerald R. Allard, Trustee of the Gerald R. Allard Revocable Trust of 1994 10.10 Registration Rights Agreement dated January , 1997 among the Company, Banc One Capital Partners Corporation, Brantley Venture Partners II, L.P., R. Jack DeCrane, DSV Parnters, IV, Electra Investment Trust, P.L.C., Internationale Nederlanden (U.S.) Capital Corporation, Electra Associates, Inc., The Provident Bank, Nassau Capital Partners L.P., NAS Partner I L.L.C.* 10.11 Shareholders Agreement dated January , 1997 among the Company, Banc One Capital Partners Corporation, Brantley Venture Partners II, L.P., R. Jack DeCrane, DSV Partners, IV, Electra Investment Trust, P.L.C., Internationale Nederlanden (U.S.) Capital Corporation, Electra Associates, Inc., The Provident Bank, Nassau Capital Partners L.P., NAS Partner I L.L.C.* 10.12 Lease dated September 1989 as amended on December 15, 1993 among Continental Development Corporation, Tri-Star Electronics, Inc., and Cory Components, Inc. for real property in El Segundo, CA 10.13 Amended and Restated Credit Agreement, dated September 18, 1996, among the Comapny, ADS Acquisition, Inc., Tri-Star Holdings, Inc., Tri-Star Electronics International, Inc., Tri-Star Technologies, Inc., Tri-Star Technologies, Tri-Star Electronics Europe S.A., Mezzovico, Cory Holdings, Inc., Cory Components, Inc., Hollingsead International, Inc., Hollingsead International Limited, The Provident Bank, and Internationale Nederlanden (U.S.) Capital Corporation.
EXHIBIT NUMBER DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------ ----- 10.14 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components, Number 6-5752-0002 10.15 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory Components, Number 6-5752-0004 10.16 Purchase Agreement 9423JC4548 between Boeing Defense & Space-Irving Co. and Cory Components, January 1, 1995 through December 31, 1999 10.17 Electrical Contact Procurement Contract Letter of Agreement, dated June 28, 1993 between Boeing Commercial Airplane Group and Tri-Star Electronics International 10.18 Asset Purchase and Sale Agreement by and among Allard Industries, Inc., Gerald R. Allard, Trustee of the Gerald R. Allard Revocable Trust of 1994, The Allard Children's Trust f/b/o John Allard, The Allard Children's Trust f/b/o Michael E. Allard, Younes Nazarian and David and Angela Nazarian, Trustees of the Nazarian Family Trust, the principal shareholders of Allard, the Company and ADS Acquisition, Inc. 10.19 Assets Purchase and Sale Agreement dated December 4, 1996 among the Company, EE Acquisition, Inc., William Lyon, and Elsinore LP 10.20 Asset Purchase and Sale Agreement dated November 25, 1996 among AMP, Incorporated, the Whitaker Corporation and DeCrane Aircraft Holdings, Inc. 10.21 Stock Purchase Agreement, dated January 1, 1995, among the Company and Cory Components, Inc. 10.22 Securities Purchase Agreement, dated September 18, 1996 among the Company, Nassau Capital Partners L.P., NAS Partners I L.L.C., and Electra Investment Trust P.L.C. 10.23 Securities Purchase Agreement, dated February 20, 1996 among the Company, Nassau Capital Partners L.P. and NAS Partners I L.L.C. 10.24 Securities Purchase Agreement dated November 2, 1994, as amended on February 20, 1996, among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. 10.25 Letter Agreement dated November 24, 1994 between the Company and Charles Becker 10.26 Warrant Agreement dated November 2, 1994 between the Company and Internationale Nederlanden (U.S.) Capital Corporation 10.27 Form of Warrant Agreement relating to the Company's Series E Warrants 10.28 Form of Warrant Agreement relating to the Company's Series F Warrants 10.29 Form of Warrant Agreement relating to the Company's Series G Warrants 10.30 Form of Warrant Agreement relating to the Company's Series H Warrants 10.31 Share Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles Becker, Robert Rankin 11.1 Statement regarding computation of per share earnings of the Company 21.1 List of Subsidiaries of Registrant
EXHIBIT NUMBER DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------ ----- 23.1 Consent of Price Waterhouse LLP 23.2 Consent of Spolin & Silverman (included in Exhibit 5.1)* 24.1 Power of Attorney (appears on signature page) 27 Financial Data Schedule
- ------------------------ * To be filed by amendment. EX-1.1 2 EXHIBIT 1.1 DeCrane Aircraft Holdings, Inc. _____ Shares Common Stock (Par Value $.01) _______________ UNDERWRITING AGREEMENT New York, New York February ___, 1996 SCHRODER WERTHEIM & CO. INCORPORATED Dean Witter Reynolds Inc. As Representatives of the several Underwriters named in Schedule I hereto c/o Schroder Wertheim & Co. Incorporated Equitable Center 787 Seventh Avenue New York, New York 10019-6016 Dear Sirs: DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the "Representatives"), are acting as representatives _________ shares of Common Stock, par value $.01 per share (the "Common Stock") of the Company (said shares to be issued and sold by the Company being hereafter called the "Firm Securities"). The Company also proposes to grant to the Underwriters an option to purchase up to an additional 15% of Firm Securities shares of Common Stock (the "Option Securities"), on the terms and for the purposes set forth in Section 2 hereof. The Firm Securities and the Option Securities are herein collectively referred to as the "Securities." Except as may be expressly set forth below, any reference to you in this Agreement shall be solely in your capacity as the Representatives. 1. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement on Form S-1 (File No. 33- ), and as a part thereof a preliminary prospectus, in respect of the Securities, has been filed with the Securities and Exchange Commission (the "Commission") in the form heretofore delivered to you and, with the exception of exhibits to the registration statement, to you for each of the other Underwriters; if such registration statement has not become effective, an amendment (the "Final Amendment") to such registration statement, including a form of final prospectus, necessary to permit such registration statement to become effective, will promptly be filed by the Company with the Commission; if such registration statement has become effective and any post-effective amendment to such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, which amendment or amendments shall be in form acceptable to you, the most recent such amendment has been declared effective by the Commission; if such registration statement has become effective, a final prospectus (the "Rule 430A Prospectus") relating to the Securities containing information permitted to be omitted at the time of effectiveness by Rule 430A of the rules and regulations of the Commission under the Securities Act of 1933, as amended (the "Act"), will promptly be filed by the Company pursuant to Rule 424(b) of the rules and regulations of the Commission under the Act (any preliminary prospectus filed as part of such registration statement being herein called a "Preliminary Prospectus," such registration statement as amended at the time that it becomes or became effective, or, if applicable, as amended at the time the most recent post-effective amendment to such registration statement filed with the Commission prior to the execution and delivery of this Agreement became effective (the "Effective Date"), including all exhibits thereto and all information deemed to be a part thereof at such time pursuant to Rule 430A of the rules and regulations of the Commission under the Act, being herein called the "Registration Statement" and the final prospectus relating to the Securities in the form first filed pursuant to Rule 424(b)(1) or (4) of the rules and regulations of the Commission under the Act or, if no such filing is required, the form of final prospectus included in the Registration Statement, being herein called the "Prospectus"); (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein; -2- (c) On the Effective Date and the date the Prospectus is filed with the Commission, and when any further amendment or supplements thereto become effective or are filed with the Commission, as the case may be, the Registration Statement, the Prospectus and such amendment or supplements did and will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through you expressly for use therein; (d) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and to conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases property, or conducts any business, so as to require such qualification (except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the business affairs or prospects of the Company and its subsidiaries, taken as a whole); and each of the Company's subsidiaries (other than Tri-Star Technologies ("TST")) has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, and, in the case of TST, has been duly formed and is validly existing as a partnership in good standing under the laws of its jurisdiction of formation, with power and authority (corporate and other) to own its properties and to conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation or, in the case of TST, as a foreign partnership, for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases property, or conducts any business, so as to require such qualification (except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the business affairs or prospects of the Company and its subsidiaries, taken as a whole); (e) Except for TST, all the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and, except as otherwise set forth in the Prospectus, are owned by the Company free and clear of all liens, pledges, encumbrances, equities, security interests, or claims; and there are no outstanding options, warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue, any shares of capital stock of any subsidiary or any security convertible or exchangeable or exercisable for capital stock of any subsidiary; except for the shares of stock of each subsidiary owned by the Company, neither the Company nor any subsidiary owns, directly or indirectly, any shares of capital stock of any corporation or has any equity interest in any firm, partnership, joint venture, association or other entity; [Pledge of stock under new credit facility] -3- (f) The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by the Company of its obligations under this Agreement have been duly and validly authorized by all requisite corporate action of the Company; and this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; (g) (i) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the Prospectus, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which loss or interference is material to the Company and its subsidiaries, taken as a whole; and, (ii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been, and prior to the Time of Delivery (as defined in Section 4 hereof); there has been no material adverse change in the condition (financial or otherwise) or in the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business; (iii) there have been no transactions entered into by the Company or by any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries, taken as a whole; (iv) there has been no dividend or distribution of any kind declared or paid or made by the Company on any class of its capital stock; and (v) neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries, taken as a whole; (h) (i) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or contemplated by the Prospectus, or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries, and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such real property and buildings by the Company and its subsidiaries, the interests of the Company or any of its subsidiaries in such leases are free and clear of all material liens, encumbrances and defects, except as disclosed in the Prospectus, and the Company and its subsidiaries are in compliance in all material respects with the terms and conditions of such leases, and (ii) (A) except for such assets and facilities as are immaterial in the aggregate to the business of the Company and its subsidiaries, all tangible assets and facilities of the Company and its subsidiaries are adequate, in the reasonable opinion of the Company, for the use to which they are being put or would be put in the ordinary course of business, (B) the operation and use of such assets and facilities is in compliance with all municipal, county, state and federal laws, regulations, ordinances, standards, orders and other regulations where -4- the failure to comply therewith could have a material adverse effect on the condition (financial or otherwise) or the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; (i) The Company has an authorized, issued and outstanding capitalization as set forth in the Registration Statement, and all the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable, are free of any preemptive rights, rights of first refusal or similar rights, were issued and sold in compliance with the applicable Federal and state securities laws and conform in all material respects to the description in the Prospectus; except as described in the Prospectus, there are no outstanding options warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible or exchangeable or exercisable for capital stock of the Company; there are no holders of securities of the Company who, by reasons of the filing of the Registration Statement have the right (and have not waived such right) to request the Company to include in the Registration Statement securities owned by them; (j) The Securities to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable, and will conform in all material respects to the description thereof in the Prospectus and will be quoted on the Nasdaq National Market as of the Effective Date; (k) The performance of this Agreement, the consummation of the transactions herein contemplated and the issue and sale of the Securities and the compliance by the Company with all the provisions of this Agreement will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, claim, or encumbrance upon, any of the property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or the By-laws, in each case as amended [and restated] to the date hereof, of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the issue and sale of the Securities or the consummation of the other transactions contemplated by this Agreement, except the registration under the Act of the Securities, and such consents, approvals, authorizations, registrations or qualifications as may be required under -5- state or foreign securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters; (l) There are no legal or governmental proceedings pending to which the Company or any of its subsidiaries or any of their respective officers or directors is a party or of which any property of the Company or any of its subsidiaries is the subject, other than litigation or proceedings incident to the business conducted by the Company and its subsidiaries which will not individually or in the aggregate have a material adverse effect on the current or future financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened or contemplated by others; and neither the Company nor any of its subsidiaries is involved in any labor dispute, nor, to the Company's knowledge, is any labor dispute threatened; (m) The Company and its subsidiaries have such certificates, authorities, licenses, permits and other approvals or authorizations of and from governmental or regulatory authorities (including, without limitation, the Federal Aviation Administration (the "FAA") (collectively, "Permits") as are necessary under applicable law to conduct their respective businesses in the manner now being conducted and as described in the Prospectus; neither the Company nor any of its subsidiaries has received any notice of proceedings or has any reason to believe proceedings are pending relating to the revocation or modification of any such Permits; and the Company and its subsidiaries have fulfilled and performed all of their respective obligations with respect to such Permits, and no event has occurred which allows, or after notice or lapse of time or both would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such permits; (n) Price Waterhouse LLP, who have certified certain financial statements of the Company and its consolidated subsidiaries and delivered their report with respect to the audited consolidated financial statements and schedules included in the Registration Statement and the Prospectus, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (o) The consolidated financial statements and schedules of the Company and its subsidiaries included in the Registration Statement and the Prospectus present fairly the financial condition, the results of operations and the cash flows of the Company and its subsidiaries as of the dates and for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved, except as otherwise stated therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus is accurately presented and, to the extent such information and data is derived from the financial statements and books and records of the Company and its subsidiaries, is prepared on a basis consistent with such financial statements and the books and records of the Company and its subsidiaries; The pro forma -6- financial information included in the Registration Statement and the Prospectus have been properly compiled and comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X of the Commission; no other financial statements or schedules are required to be included in the Registration Statement and the Prospectus; (p) There are no statutes or governmental regulations, or any contracts or other documents that are required to be described in or filed as exhibits to the Registration Statement which are not described therein or filed as exhibits thereto; and all such contracts to which the Company or any subsidiary is a party have been duly authorized, executed and delivered by the Company or such subsidiary, constitute legal, valid and binding agreements of the Company or such subsidiary and are enforceable against the Company or subsidiary in accordance with the terms thereof; (q) The Company and its subsidiaries own or possess adequate patent rights or licenses or other rights to use patent rights, inventions, trademarks, service marks, trade names, copyrights, technology and know-how necessary to conduct the general business now or proposed to be operated by them as described in the Prospectus; neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trademarks, service marks, trade names, copyrights, technology or know-how which, singly or in the aggregate, could materially adversely affect the business, operations, financial condition, income or business prospects of the Company and its subsidiaries considered as a whole; and, the discoveries, inventions, products or processes of the Company and its subsidiaries referred to in the Prospectus do not, to the Company's knowledge, infringe or conflict with any patent or right of any third party, or any discovery, invention, product or process which is the subject of a patent application filed by any third party, known to the Company; (r) Neither the Company nor any of and its subsidiaries are in violation of any term or provision of its Certificate of Incorporation, By-Laws, Certificate of Limited Partnership or Partnership Agreement (or similar corporate constituent documents), in each case as amended to the date hereof, or any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of its subsidiaries, or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries; (s) No default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, bank loan or credit agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their respective properties is bound or may be affected in any material adverse respect -7- with regard to the property, business or operations of the Company and its subsidiaries; (t) The Company and its subsidiaries have timely filed all necessary tax returns and notices and have paid all federal, state, county, local and foreign taxes of any nature whatsoever for all tax years through December 31, 1996, to the extent such taxes have become due. The Company has no knowledge, or any reasonable grounds to know, of any tax deficiencies which would have a material adverse effect on the Company or any of its subsidiaries; the Company and its subsidiaries have paid all taxes which have become due, whether pursuant to any assessments, or otherwise, and there is no further liability (whether or not disclosed on such returns) or assessments for any such taxes, and no interest or penalties accrued or accruing with respect thereto, except as may be set forth or adequately reserved for in the financial statements included in the Registration Statement; the amounts currently set up as provisions for taxes or otherwise by the Company and its subsidiaries on their books and records are sufficient for the payment of all their unpaid federal, foreign, state, county and local taxes accrued through the dates as of which they speak, and for which the Company and its subsidiaries may be liable in their own right, or as a transferee of the assets of, or as successor to any other corporation, association, partnership, joint venture or other entity; (u) The Company will not, during the period of 180 days after the date hereof except pursuant to this Agreement, offer, sell, contract to sell or otherwise dispose of any capital stock of the Company (or securities convertible into, or exchangeable for, capital stock of the Company), directly or indirectly, without the prior written consent of Schroder Wertheim & Co. Incorporated, except for grants of stock options under the Company's Amended and Restated 1993 Share Incentive Plan (the "1993 Plan") or pursuant to the terms of convertible securities of the Company outstanding on the date hereof; [WARRANTS] (v) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; (w) None of the Company or its subsidiaries, or its officers, directors, employees or agents has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, or made any unlawful payment of funds of the Company or any subsidiary or received or retained any funds in violation of any law, rule or regulation; -8- (x) None of the Company or its subsidiaries, or its officers, directors, employees or agents have taken or will take, directly or indirectly, any action designed to or which has constituted or that might be reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities; (y) (i) The Company and each subsidiary maintains insurance covering their properties, operations, personnel and business, (ii) such insurance insures against such losses and risks to an extent which is adequate in accordance with customary industry practice to protect the Company and its subsidiaries and their businesses and (iii) all such insurance is outstanding and duly in force on the date hereof; (z) The Directors' and Officers' Questionnaires delivered by the Company to the Underwriters on or prior to the Effective Date are true and correct in all material respects; (aa) None of the Company or its subsidiaries is an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its respective ability to incur indebtedness for borrowed money, except statutes or regulations applicable generally to business corporations incorporated or doing business in the various states in which the Company and its subsidiaries do business. (ab) (i) Neither the Company nor any of its subsidiaries is engaged in any unfair labor practice which would have a material adverse effect on the Company and its subsidiaries, taken as a whole; (ii) there is (A) no unfair labor practice complaint pending or threatened against the Company or any of its subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or, threatened, (B) no strike, labor dispute, slowdown or stoppage is pending or threatened against the Company or any of its subsidiaries and (C) (i) no union representation question existing with respect to the employees of the Company or any of its subsidiaries and no union organizing activities are taking place, and (ii) there has been no violation of any federal, state or local law relating to discrimination in the hiring, promotion or pay of employees, of any applicable wage or hour laws, nor any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or the rules and regulations promulgated thereunder; (ac) (i) Each of the Company and its subsidiaries has obtained all permits, licenses and other authorizations that are required under all applicable Federal, State, Local and Foreign environmental laws, including but not limited to the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), Resource Conservation & Recovery Act (42 U.S.C. Section 6901 ET SEQ.), Safe Drinking Water Act (21 U.S.C. Section 349, 42 U.S.C. Sections 201, 300f), Toxic -9- Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.), the appropriate laws of any state in which the Company or any of its subsidiaries owns or leases real property and any other laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water or land), or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes or under any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder (collectively, the "Environmental Laws"), except as otherwise set forth in the Prospectus or to the extent failure to have any such permit, license or authorization, individually, or in the aggregate, does not have a material adverse effect on the condition (financial or otherwise) or the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; (ii) except as described in the Prospectus, each of the Company and its subsidiaries is in compliance with all terms and conditions of any required permits, licenses and authorizations, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws, except to the extent failure to comply would not have a material adverse effect on the condition (financial or otherwise) or the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; and (iii) except as disclosed in the Prospectus, the Company and its susidiaries do not have any material liabilities arising under Environmental Laws; (ad) (i) There are no past or present events, conditions, circumstances, activities, practices, incidents, actions, or plans relating to the business as presently being conducted by the Company or its subsidiaries that interfere with or prevent compliance or continued compliance with the Environmental Laws, or which would be reasonably likely to give rise to any legal liability (whether statutory or common law) or otherwise would be reasonably likely to form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study, investigation, remediation or cleanup based on or related to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release into the workplace, the community or the environment of any pollutant, contaminant, chemical or industrial, toxic, or hazardous substance or waste, except for any liabilities or any claims, demands or other actions specified above that will not individually or in the aggregate have a material adverse effect on the Company and its subsidiaries, taken as a whole, and (ii) except as previously disclosed to the Underwriters or their counsel, no asbestos-containing material and no underground or above-ground storage tanks are located on property owned or leased by the Company or its subsidiaries and none have been previously removed or filled by the Company or its subsidiaries or, to the best of their knowledge, any predecessor of the Company or its subsidiaries; and -10- (ae) Except as disclosed in the Prospectus, there are no business relationships or related party transactions required to be disclosed therein by Item 404 of Regulation S-K promulgated under the Securities Act. 2. Subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters an aggregate of _________ Firm Securities, and each of the Underwriters agrees to purchase from the Company, at a purchase price of $__________ per share, the respective aggregate number of Firm Securities determined in the manner set forth below. The obligation of each Underwriter to the Company shall be to purchase that portion of the number of shares of Common Stock to be sold by the Company pursuant to this Agreement as the number of Firm Securities set forth opposite the name of such Underwriter on Schedule I bears to the total number of Firm Securities to be purchased by the Underwriters pursuant to this Agreement, in each case adjusted by you such that no Underwriter shall be obligated to purchase Firm Securities other than in 100 share amounts. In making this Agreement, each Underwriter is contracting severally and not jointly. In addition, subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriters, as required (for the sole purpose of covering over-allotments in the sale of the Firm Securities), up to _______ Option Securities at the purchase price per share of the Firm Securities being sold by the Company as stated in the preceding paragraph. The right to purchase the Option Securities may be exercised by your giving 48 hours' prior written or telephonic notice (subsequently confirmed in writing) to the Company of your determination to purchase all or a portion of the Option Securities. Such notice may be given at any time within a period of 30 days following the date of this Agreement. Option Securities shall be purchased severally for the account of each Underwriter in proportion to the number of Firm Securities set forth opposite the name of such Underwriter in Schedule I hereto. No Option Securities shall be delivered to or for the accounts of the Underwriters unless the Firm Securities shall be simultaneously delivered or shall theretofore have been delivered as herein provided. The respective purchase obligations of each Underwriter shall be adjusted by you so that no Underwriter shall be obligated to purchase Option Securities other than in 100 share amounts. The Underwriters may cancel any purchase of Option Securities at any time prior to the Option Securities Delivery Date (as defined in Section 4 hereof) by giving written notice of such cancellation to the Company. 3. The Underwriters propose to offer the Securities for sale upon the terms and conditions set forth in the Prospectus. 4. Certificates in definitive form for the Firm Securities to be purchased by each Underwriter hereunder shall be delivered by or on behalf of the Company to you for the account of such Underwriter, against payment by such Underwriter or on its behalf of the purchase price therefor by certified or official bank check or checks, payable in New York Clearing House funds, to the order of the Company, for the purchase price of the Firm Securities being sold by the Company at the office of Schroder Wertheim & Co. Incorporated, Equitable Center, 787 Seventh Avenue, New York, New York, at 9:30 A.M., -11- New York City time, on __________ __, 199_, or at such other time, date and place as you and the Company may agree upon in writing, such time and date being herein called the "Time of Delivery." Certificates in definitive form for the Option Securities to be purchased by each Underwriter hereunder shall be delivered by or on behalf of the Company to you for the account of such Underwriter, against payment by such Underwriter or on its behalf of the purchase price thereof by certified or official bank check or checks, payable in New York Clearing House funds, to the order of the Company, for the purchase price of the Option Securities, in New York, New York, at such time and on such date (not earlier than the Time of Delivery nor later than ten business days after giving of the notice delivered by you to the Company with reference thereto) and in such denominations and registered in such names as shall be specified in the notice delivered by you to the Company with respect to the purchase of such Option Securities. The date and time of such delivery and payment are herein sometimes referred to as the "Option Securities Delivery Date." The obligations of the Underwriters shall be subject, in their discretion, to the condition that there shall be delivered to the Underwriters on the Option Securities Delivery Date opinions and certificates, dated such Option Securities Delivery Date, referring to the Option Securities, instead of the Firm Securities, but otherwise to the same effect as those required to be delivered at the Time of Delivery pursuant to Section 7(d), 7(e), 7(f) and 7(i). Certificates for the Firm Securities and the Option Securities so to be delivered will be in good delivery form, and in such denominations and registered in such names as you may request not less than 48 hours prior to the Time of Delivery and the Option Securities Delivery Date, respectively. Such certificates will be made available for checking and packaging in New York, New York, at least 24 hours prior to the Time of Delivery and Option Securities Delivery Date. 5. The Company covenants and agrees with each of the Underwriters: (a) If the Registration Statement has not become effective, to file promptly the Final Amendment with the Commission and use its best efforts to cause the Registration Statement to become effective; if the Registration Statement has become effective, to file promptly the Rule 430A Prospectus with the Commission; to make no further amendment or any supplement to the Registration Statement or Prospectus which shall be disapproved by you after reasonable notice thereof; to advise you, promptly after it receives notice thereof of the time when the Registration Statement, or any amendment thereto, or any amended Registration Statement has become effective or any supplement to the Prospectus or any amended Prospectus has been filed, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and in the event of the issuance of any stop order or of any order preventing or suspending the use of any -12- Preliminary Prospectus or the Prospectus or suspending any such qualification, to use promptly its best efforts to obtain withdrawal of such order; (b) Promptly from time to time to take such action as you may request to qualify the Securities for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish each of the Representatives and counsel for the Underwriters, without charge, signed copies of the registration statement originally filed with respect to the Securities and each amendment thereto (in each case including all exhibits thereto) and to each other Underwriter, without charge, a conformed copy of such registration statement and each amendment thereto (in each case without exhibits thereto) and, so long as a prospectus relating to the Securities is required to be delivered under the Act, as many copies of each Preliminary Prospectus, the Prospectus and all amendments or supplements thereto as you may from time to time reasonably request. If at any time when a prospectus is required to be delivered under the Act an event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Act, the Company will forthwith prepare and, subject to the provisions of Section 5(a) hereof, file with the Commission an appropriate supplement or amendment thereto, and will furnish to each Underwriter and to any dealer in securities, without charge, as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance in accordance with the requirements of Section 10 of the Act; (d) To make generally available to its stockholders as soon as practicable, but in any event not later than 45 days after the close of the period covered thereby, an earnings statement in form complying with the provisions of Section 11(a) of the Act covering a period of 12 consecutive months beginning not later than the first day of the Company's fiscal quarter next following the Effective Date; (e) To file promptly all documents required to be filed with the Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") subsequent to the Effective Date and during any period when the Prospectus is required to be delivered; -13- (f) For a period of five years from the Effective Date, to furnish to its stockholders after the end of each fiscal year an annual report (including a consolidated balance sheet and statements of income, cash flow and stockholders' equity of the Company and its subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the Effective Date), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of five years from the Effective Date, to furnish to you copies of all reports or other communications (financial or other) furnished to its stockholders, and deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request in connection with your obligations hereunder; (h) To apply the net proceeds from the sale of the Securities in the manner set forth in the Prospectus under the caption "Use of Proceeds"; (i) That it will not, and will cause its subsidiaries, officers, directors, employees, agents and affiliates not to, take, directly or indirectly, any action designed to cause or result in, or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities; (j) That prior to the Time of Delivery there will not be any change in the capital stock or material change in the short-term debt or long-term debt of the Company or any of its subsidiaries, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or any of its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (k) That it will not, during the period of 180 days after the date hereof (other than pursuant to this Agreement), offer, sell, contract to sell or otherwise dispose of any capital stock of the Company (or securities convertible into, or exchangeable for, capital stock of the Company), directly or indirectly, without the prior written consent of Schroder Wertheim & Co. Incorporated, except for grants of stock options under the Company's Stock Option Plan [; [WARRANTS] (l) That it has caused the Securities to be included for quotation on the Nasdaq National Market as of the Effective Date; and -14- (m) To file with the Commission such reports on Form SR as may be required pursuant to Rule 463 under the Act. 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid: i) the fees, disbursements and expenses of counsel and accountants for the Company, and all other expenses, in connection with the preparation, printing and filing of the Registration Statement and the Prospectus and amendments and supplements thereto and the furnishing of copies thereof, including charges for mailing, air freight and delivery and counting and packaging thereof and of any Preliminary Prospectus and related offering documents to the Underwriters and dealers; ii) the cost of printing this Agreement, the Agreement Among Underwriters, the Selling Agreement, communications with the Underwriters and selling group and the Preliminary and Supplemental Blue Sky Memoranda and any other documents in connection with the offering, purchase, sale and delivery of the Securities; iii) all expenses in connection with the qualification of the Securities for offering and sale under securities laws as provided in Section 5(b) hereof, including filing and registration fees and the fees, disbursements and expenses for counsel for the Underwriters in connection with such qualification and in connection with Blue Sky surveys or similar advice with respect to sales; iv) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Securities; v) all fees and expenses in connection with quotation of the Securities on the Nasdaq National Market; and vi) all other costs and expenses incident to the performance of their obligations hereunder which are not otherwise specifically provided for in this Section 6, including the fees of the Company's Transfer Agent and Registrar, the cost of any stock issue or transfer taxes on sale of the Securities to the Underwriters, the cost of the Company's personnel and other internal costs, the cost of printing and engraving the certificates representing the Securities and all expenses and taxes incident to the sale and delivery of the Securities to be sold by the Company to the Underwriters hereunder. It is understood, however, that, except as provided in this Section, Section 8 and Section 11 hereof, the Underwriters will pay all their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of the Time of Delivery, true and correct, the condition that the Company shall have performed all its obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Registration Statement shall have become effective, and you shall have received notice thereof not later than 10:00 P.M., New York City time, on the date of execution of this Agreement, or at such other time as you and the Company may agree; if required, the Prospectus shall have been filed with the Commission in the manner and within the time period required by Rule 424(b); no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the -15- Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) All corporate proceedings and related legal and other matters in connection with the organization of the Company and the registration, authorization, issue, sale and delivery of the Securities shall have been reasonably satisfactory to Milbank, Tweed, Hadley & McCloy ("Milbank"), counsel to the Underwriters, and Milbank shall have been timely furnished with such papers and information as they may reasonably have requested to enable them to pass upon the matters referred to in this subsection; (c) You shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact or omits to state a fact which in your judgment is in either case material and, in the case of an omission, is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) Spolin & Silverman, counsel to the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in form and substance satisfactory to you, to the effect that: i) The Company has been duly and validly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, and is qualified to do business and is in good standing in each jurisdiction in which its ownership or leasing of properties requires such qualification or the conduct of its business requires such qualification (except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the business affairs or prospects of the Company and its subsidiaries, taken as a whole); and the Company has all necessary corporate power and all material governmental authorizations, permits and approvals required to own, lease and operate its properties and conduct its business as described in the Prospectus; ii) Each of the Company's subsidiaries (other than TST) has been duly and validly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and, in the case of TST, has been duly formed and is validly existing as a partnership in good standing under the laws of its jurisdiction of formation, and is qualified to do business and is in good standing in each jurisdiction in which its ownership or leasing of properties requires such qualification or the conduct of its business requires such qualification (except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the business affairs or prospects of the Company and its subsidiaries, taken as a whole); and each of the Company's subsidiaries has all necessary power (corporate or otherwise) and all material governmental -16- authorizations, permits and approvals required to own, lease and operate its properties and to conduct its business as described in the Prospectus; iii) Except for TST, all the outstanding shares of capital stock of each of the Company's subsidiaries, and, in the case of TST, all partnership interests have been duly authorized and are validly issued and outstanding, are fully paid and non-assessable and are owned by the Company of record and to the best knowledge of such counsel, (A) beneficially and (B) free and clear of all liens, pledges, encumbrances, equities, security interests or claims of any nature whatsoever; and neither the Company nor any of its subsidiaries has granted any outstanding options, warrants or commitments with respect to any shares of its capital stock, or, in the case of TST, any partnership interests, whether issued or unissued, except as otherwise described in the Prospectus; iv) The Company has an authorized capitalization as set forth in the Registration Statement and all the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; are free of any preemptive rights, and were issued and sold in compliance with all applicable Federal and state securities laws; except as described in the Prospectus, to the knowledge of such counsel, there are no outstanding options, warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue, any shares of capital stock of the Company; the Securities being sold by the Company have been duly and validly authorized and, when duly countersigned by the Company's Transfer Agent and Registrar and issued, delivered and paid for in accordance with the provisions of the Registration Statement and this Agreement, will be duly and validly issued, fully paid and non-assessable; the Securities conform to the description thereof in the Prospectus; the Securities have been duly authorized for quotation on the Nasdaq National Market, as of the Effective Date; and the certificates for the Securities as are in valid and sufficient form; v) To the best of such counsel's knowledge, there are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries or any of their respective officers or directors is a party or of which any property of the Company or any of its subsidiaries is the subject which, if resolved against the Company or any of its subsidiaries or any of their respective officers or directors, individually, or to the extent involving related claims or issues, in the aggregate, is of a character required to be disclosed in the Prospectus which has not been properly disclosed therein; vi) This Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except as enforceability -17- of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and except as enforceability of those provisions relating to indemnity may be limited by the Federal securities laws and principles of public policy; vii) The Company has full corporate power and authority to execute, deliver and perform this Agreement, and the execution, delivery and performance of this Agreement, the consummation of the transactions herein contemplated and the issue and sale of the Securities and the compliance by the Company with all the provisions of this Agreement will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, claim or encumbrance upon, any of the property or assets of the Company or any of its subsidiaries pursuant to, the terms of any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation, the By-Laws, the Certificate of Limited Partnership or the Partnership Agreement in each case as amended [and restated], of the Company or any of its subsidiaries, or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; viii) No consent, approval, authorization, order, registration or qualification of or with any court or any regulatory authority or other governmental body is required for the issue and sale of the Securities or the consummation of the other transactions contemplated by this Agreement, except such as have been obtained under the Act and such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Under-writers; ix) To the best of such counsel's knowledge, neither the Company nor any of its subsidiaries is currently in violation of its Certificate of Incorporation, the By-laws, the Certificate of Limited Partnership or the Partnership Agreement or in default under, any indenture, mortgage, deed of trust, lease, bank loan or credit agreement or any other agreement or instrument of which such counsel has knowledge to which the Company or any of its subsidiaries is a party or by which any of them or any of their property may be bound or affected (in any respect that is material in light of the financial condition of the Company and its subsidiaries, taken as a whole); -18- x) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any Securities pursuant to the Company's Certificate of Incorporation or By-Laws, in each case as amended to the date hereof, or any agreement or other instrument known to such counsel; and no holders of securities of the Company have rights to the registration thereof under the Registration Statement or, if any such holders have such rights, such holders have waived such rights; xi) To the extent summarized therein, all contracts and agreements summarized in the Registration Statement and the Prospectus are fairly summarized therein, conform in all material respects to the descriptions thereof contained therein, and, to the extent such contracts or agreements or any other material agreements are required under the Act or the rules and regulations thereunder to be filed, as exhibits to the Registration Statement, they are so filed; and such counsel does not know of any contracts or other documents required to be summarized or disclosed in the Prospectus or to be so filed as an exhibit to the Registration Statement, which have not been so summarized or disclosed, or so filed; xii) All descriptions in the Prospectus of statutes, regulations (including, without limitation, those of the FAA) or legal or governmental proceedings are fair summaries thereof and fairly present the information required to be shown with respect to such matters; xiii) Nothing has come to such counsel's attention to give such counsel reason to believe that any of the representations and warranties of the Company contained in this Agreement or in any certificate or document contemplated under this Agreement to be delivered are not true or correct or that any of the covenants and agreements herein contained to be performed on the part of the Company or any of the conditions herein contained, or set forth in the Registration Statement and the Prospectus, to be fulfilled or complied with by the Company have not been or will not be duly and timely performed, fulfilled or complied with; and xiv) The Registration Statement has become effective under the Act, the Prospectus has been filed in accordance with Rule 424(b) of the rules and regulations of the Commission under the Act, including the applicable time periods set forth therein, or such filing is not required and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Act, and the Registration Statement, the Prospectus and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; it being understood that such counsel need express no -19- opinion as to the financial statements and schedules or other financial data contained in the Registration Statement or the Prospectus. Such counsel shall also state that nothing has come to such counsel's attention that would lead such counsel to believe that either the Registration Statement or any amendment or supplement thereto, at the time such Registration Statement or amendment or supplement became effective and as of the Time of Delivery, or the Prospectus or any amendment or supplement thereto, as of its date and as of the Time of Delivery, contains or contained any untrue statement of material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In rendering their opinions set forth in Section 7(d) above, such counsel may rely, to the extent deemed advisable by such counsel, (a) as to factual matters, upon certificates of public officials and officers of the Company, and (b) as to the laws of any jurisdiction other than the United States and jurisdictions in which they are admitted, on opinions of counsel (provided, however, that you shall have received a copy of each of such opinions which shall be dated the Time of Delivery, addressed to you or otherwise authorizing you to rely thereon, and Spolin & Silverman in its opinion to you delivered pursuant to this subsection, shall state that such counsel are satisfactory to them and Spolin & Silverman has no reason to believe that the Underwriters and they are not justified to so rely); (e) Milbank, counsel to the Underwriters, shall have furnished to you their written opinion or opinions, dated the Time of Delivery, in form and substance satisfactory to you, with respect to the incorporation of the Company, the validity of the Securities, the Registration Statement, the Prospectus and other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (f) At the time this Agreement is executed and also at the Time of Delivery, Price Waterhouse LLP shall have furnished to you a letter or letters, dated the date of this Agreement and the Time of Delivery, in form and substance satisfactory to you, to the effect, that: i) They are independent accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; ii) In their opinion the consolidated financial statements of the Company and its subsidiaries (including the related schedules and notes) included in the Registration Statement and Prospectus and covered by their reports included therein comply as to form in all material respects with the -20- applicable accounting requirements of the Act and the published rules and regulations thereunder; iii) On the basis of specified procedures as of a specified date not more than five days prior to the date of their letter (which procedures do not constitute an examination made in accordance with generally accepted auditing standards), consisting of a reading of the latest available unaudited interim consolidated financial statements of the Company and its subsidiaries, a reading of the latest available minutes of any meeting of the Board of Directors and stockholders of the Company and its subsidiaries since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Company and its subsidiaries who have responsibility for financial and accounting matters, and such other procedures or inquiries as are specified in such letter, nothing came to their attention that caused them to believe that: (A) the unaudited consolidated condensed financial statements of the Company and its subsidiaries included in the Prospectus do not comply in form in all material respects with the applicable accounting requirements of the Act and the rules and regulations promulgated thereunder or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements included in the Registration Statement and the Prospectus; (B) as of a specified date not more than five days prior to the date of their letter, there was any change in the capital stock, or the long-term debt or short-term debt of the Company and its subsidiaries on a consolidated basis, or any decrease in total assets, net current assets, net assets or stockholders' equity or other items specified by the Representatives, of the Company and its subsidiaries on a consolidated basis, each as compared with the amounts shown on the December 31, 1996 balance sheet included in the Registration Statement and the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or such other changes, decreases or increases which are described in their letter and which do not, in the sole judgment of the Representatives, make it impractical or inadvisable to proceed with the purchase and delivery of the Securities as contemplated by the Registration Statement; and (C) for the period from January 1, 1997 to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period of the preceding fiscal year, in the following consolidated amounts: net sales, income from operations, income before provision for income taxes, net income -21- or net income per share of the Company and its subsidiaries, except in all instances for decreases which the Registration Statement discloses have occurred or may occur; or such other decreases which are described in their letter and which do not, in the sole judgment of the Representatives, make it impractical or inadvisable to proceed with the purchase and delivery of the Securities as contemplated by the Registration Statement; and iv) in addition to the examination referred to in their reports included in the Registration Statement and the Prospectus and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information specified by the Representatives, which are derived from the general accounting records of the Company and its subsidiaries which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement, and have compared such amounts and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement and have proved the mathematical accuracy of certain specified percentages. v) On the basis of a reading of the pro forma consolidated financial statements included in the Registration Statement and the Prospectus, carrying out certain specified procedures that would not necessarily reveal matters of significance with respect to the comments set forth in this clause (v), inquiries of certain officials of the Company and its consolidated subsidiaries who have responsibility for financial and accounting matters and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the pro forma consolidated financial statements, nothing came to their attention that caused them to believe that the pro forma consolidated financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements. (g) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree; and since the respective dates as of which information is given in the Prospectus, there shall not have been any change in the capital stock (other than shares issued pursuant to the exercise of options issued pursuant to the 1993 Plan or pursuant to the terms of convertible securities of the Company outstanding on the date hereof) or short-term debt or long-term debt of the Company or any of its subsidiaries nor any change or any development involving a prospective change, in or affecting the general affairs, management, financial -22- position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus; (h) Between the date hereof and the Time of Delivery there shall have been no declaration of war by the Government of the United States; at the Time of Delivery there shall not have occurred any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or other calamity or crisis, the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the resale of Securities and no event shall have occurred resulting in (i) trading in securities generally on the New York Stock Exchange or in the Common Stock on the principal securities exchange or market in which the Common Stock is listed or quoted being suspended or limited or minimum or maximum prices being generally established on such exchanges or market, or (ii) additional material governmental restrictions, not in force on the date of this Agreement, being imposed upon trading in securities generally by the New York Stock Exchange or in the Common Stock on the principal securities exchange or market in which the Common Stock is listed or quoted or by order of the Commission or any court or other governmental authority, or (iii) a general banking moratorium being declared by either Federal or New York authorities; (i) The Company shall have furnished or caused to be furnished to you at the Time of Delivery certificates signed by the chief executive officer and the chief financial officer, on behalf of the Company, satisfactory to you as to such matters as you may reasonably request and as to (i) the accuracy of the Company's representations and warranties herein at and as of the Time of Delivery and (ii) the performance by the Company of all its obligations hereunder to be performed at or prior to the Time of Delivery; the Company shall have furnished or caused to be furnished to you at the Time of Delivery certificates signed by the chief executive officer and the chief financial officer, on behalf of the Company, as to (i) the fact that they have carefully examined the Registration Statement and Prospectus and, (a) as of the Effective Date, the statements contained in the Registration Statement and the Prospectus were true and correct and neither the Registration Statement nor the Prospectus omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (b) since the Effective Date, no event has occurred that is required by the Act or the rules and regulations of the Commission thereunder to be set forth in an amendment of, or a supplement to, the Prospectus that has not been set forth in such an amendment or supplement; and (ii) the matters set forth in subsection (a) of this Section 7; (j) Each director, officer and five percent stockholder of the Company shall have delivered to you an agreement not to offer, sell, contract to sell or otherwise -23- dispose of any shares of capital stock of the Company (or securities convertible into, or exchangeable for, capital stock of the Company), directly or indirectly, for a period of 180 days after the date of this Agreement, without the prior written consent of Schroder Wertheim & Co. Incorporated; and (k) The Company shall have delivered to you evidence that the Securities have been authorized for quotation on the Nasdaq National Market as of the Effective Date. 8. (a) The Company will indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, from and against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or in any Blue Sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all the Securities under the security laws thereof or filed with the Commission or any securities association or securities exchange (each, an "Application"), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading, or (ii) any untrue statement or alleged untrue statement made by the Company in Section 1 of this Agreement, or (iii) the employment by the Company of any device, scheme or artifice to defraud, or the engaging by the Company in any act, practice or course of business which operates or would operate as a fraud or deceit, or any conspiracy with respect thereto, in which the Company shall participate, in connection with the issuance and sale of any of the Securities, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating, preparing to defend, defending or appearing as a third-party witness in connection with any such action or claim; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission relating to an Underwriter made in any Preliminary Prospectus, the Registration Statement, the Prospectus or such amendment or supplement or any Application in reliance upon and in conformity with written information furnished to the Company by such Underwriter through you expressly for use therein; [and PROVIDED, FURTHER, that the indemnity agreement contained in this Section 8(a) with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or any persons controlling such Underwriter) on account of any losses, claims, damages, liabilities or litigation arising from the sale of Securities to any person, if such Underwriter fails to send or give a copy of the Prospectus, as the same may be then supplemented or amended, to such person, within the time required by the Act and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus, unless such failure is the result of noncompliance by the Company with Section 5(c) hereof]. -24- (b) In addition to any obligations of the Company under Section 8(a), the Company agrees that it shall perform its indemnification obligations under Section 8(a) (as modified by the last paragraph of this Section 8(b)) with respect to counsel fees and expenses and other expenses reasonably incurred by making payments within 45 days to the Underwriter in the amount of the statements of the Underwriter's counsel or other statements which shall be forwarded by the Underwriter, and that they shall make such payments notwithstanding the absence of a judicial determination as to the propriety and enforceability of the obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court and a court orders return of such payments. The indemnity agreement in Section 8(a) shall be in addition to any liability which the Company may otherwise have and shall extend upon the same terms and conditions to each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act. (c) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or any Application, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement, the Prospectus or such amendment or supplement or any Application in reliance upon and in conformity with written information furnished to the Company by such Underwriter relating to such Underwriter through you expressly for use therein, and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim. The indemnity agreement in this Section 8(c) shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act or the Exchange Act. (d) Promptly after receipt by an indemnified party under Section 8(a) or 8(c) of notice of the commencement of any action (including any governmental investigation), such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party under Section 8(a) or 8(c) except to the extent it was unaware of such action and has been prejudiced in any material respect by such failure or from any liability which it may have to any indemnified party otherwise than under such Section 8(a) or 8(c). In case any such action shall be brought against any -25- indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. If, however, (i) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party or (ii) an indemnified party shall have reasonably concluded that representation of such indemnified party and the indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them and the indemnified party so notifies the indemnifying party, then the indemnified party shall be entitled to employ counsel different from counsel for the indemnifying party at the expense of the indemnifying party and the indemnifying party shall not have the right to assume the defense of such indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to local counsel) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same set of allegations or circumstances. The counsel with respect to which fees and expenses shall be so reimbursed shall be designated in writing by Schroder Wertheim & Co. Incorporated in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(c). If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 8(b), the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. 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 on claims that are the subject matter of such proceeding. (e) In order to provide for just and equitable contribution under the Act in any case in which (i) any Underwriter (or any person who controls any Underwriter within the meaning of the Act or the Exchange Act) makes claim for indemnification pursuant to Section 8(a) hereof, but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that Section 8(a) provides for indemnification in such case or (ii) contribution under the Act may be required on the part of any Underwriter or any such -26- controlling person in circumstances for which indemnification is provided under Section 8(c), then, and in each such case, each indemnifying party shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject as an indemnifying party hereunder (after contribution from others) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 8(d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Securities purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault 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 on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(e) 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 above in this Section 8(e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 8(e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the 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. No person guilty of a 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 Underwriters' obligations in this Section 8(e) to contribute are several in proportion to their respective underwriting obligations and not joint. (f) Promptly after receipt by any party to this Agreement of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (the "contributing party"), notify the contributing party of the commencement thereof; but the omission so to notify the -27- contributing party will not relieve it from any liability which it may have to any other party for contribution under the Act except to the extent it was unaware of such action and has been prejudiced in any material respect by such failure or from any liability which it may have to any other party other than for contribution under the Act. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party of the commencement thereof, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. 9. (a) If any Underwriter shall default in its obligation to purchase the Firm Securities which it has agreed to purchase hereunder, you may in your discretion arrange for you or another party or other parties to purchase such Firm Securities on the terms contained herein. If the aggregate number of Firm Securities as to which Underwriters default is more than one-eleventh of the aggregate number of all the Firm Securities and within 36 hours after such default by any Underwriter you do not arrange for the purchase of such Firm Securities, then the Company shall be entitled to a further period of 36 hours within which to procure another party or other parties satisfactory to you to purchase such Firm Securities on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Firm Securities, or the Company notifies you that it has so arranged for the purchase of such Firm Securities, you or the Company shall have the right to postpone the Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Firm Securities. (b) If, after giving effect to any arrangements for the purchase of the Firm Securities of such defaulting Underwriter or Underwriters by you or the Company or both as provided in subsection (a) above, the aggregate number of such Firm Securities which remain unpurchased does not exceed one-eleventh of the aggregate number of all the Firm Securities, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of the Firm Securities which such Underwriter agreed to purchase hereunder and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Firm Securities which such Underwriter agreed to purchase hereunder) of the Firm Securities of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Firm Securities of a defaulting Underwriter or Underwriters by you or the Company as provided in subsection (a) above, the aggregate number of such Firm Securities which remain unpurchased exceeds one-eleventh of the aggregate number of all the Firm Securities, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Firm Securities of a defaulting Underwriter or -28- Underwriters, then this Agreement shall thereupon terminate without liability on the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 6 hereof and the indemnity agreement in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or an officer or director or controlling person of the Company, and shall survive delivery of and payment for the Securities. 11. This Agreement shall become effective (a) if the Registration Statement has not heretofore become effective, at the earlier of 12:00 Noon, New York City time, on the first full business day after the Registration Statement becomes effective, or at such time after the Registration Statement becomes effective as you may authorize the sale of the Securities to the public by Underwriters or other securities dealers, or (b) if the Registration Statement has heretofore become effective, at the earlier of 24 hours after the filing of the Prospectus with the Commission or at such time as you may authorize the sale of the Securities to the public by Underwriters or securities dealers, unless, prior to any such time you shall have received notice from the Company that it elects that this Agreement shall not become effective, or you, or through you such of the Underwriters as have agreed to purchase in the aggregate fifty percent or more of the Firm Securities hereunder, shall have given notice to the Company that you or such Underwriters elect that this Agreement shall not become effective; provided, however, that the provisions of this Section and Section 6 and Section 8 hereof shall at all times be effective. If this Agreement shall be terminated pursuant to Section 9 hereof, or if this Agreement, by election of you or the Underwriters, shall not become effective pursuant to the provisions of this Section, the Company shall not then be under any liability to any Underwriter except as provided in Section 6 and Section 8 hereof, but if this Agreement becomes effective and is not so terminated but the Securities are not delivered by or on behalf of the Company as provided herein because the Company has been unable for any reason beyond its control and not due to any default by it to comply with the terms and conditions hereof, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Securities, but the Company shall then be under no further liability to any Underwriter except as provided in Section 6 and Section 8 hereof. 12. The statements set forth in the last paragraph on the front cover page of the Prospectus, the paragraph on the inside front cover of the Prospectus containing stabilization language and the second paragraph under the caption "Underwriting" in the Prospectus -29- constitute the only information furnished by any Underwriter through the Representatives to the Company for purposes of Sections 1(b), 1(c) and 8 hereof. 13. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Schroder Wertheim & Co. Incorporated on behalf of you as the Representatives. All statements, requests, notices and agreements hereunder, unless otherwise specified in this Agreement, shall be in writing and, if to the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission (subsequently confirmed by delivery or by letter sent by mail) to you as the Representatives in care of Schroder Wertheim & Co. Incorporated, Equitable Center, 787 Seventh Avenue, New York, New York 10019, Attention: Syndicate Department; and if to the Company, shall be delivered or sent by mail, telex or facsimile transmission (subsequently confirmed by delivery or by letter sent by mail) to the address of the Company set forth in the Registration Statement, Attention:________________________; PROVIDED, HOWEVER, that any notice to any Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission (subsequently confirmed by delivery or by letter sent by mail) to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 14. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Section 8 and Section 10 hereof, the officers and directors of the Company and each person who controls the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 15. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 16. This Agreement shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof. 17. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us two counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters and the Company. It is understood that your acceptance of this letter on -30- behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement Among Underwriters, manually or facsimile executed counterparts of which, to the extent practicable and upon request, shall be submitted to the Company for examination, but without warranty on your part as to the authority of the signers thereof. Very truly yours, DeCrane Aircraft Holdings, Inc. By:__________________________________ R. Jack DeCrane Chairman and C.E.O. Accepted as of the date hereof: SCHRODER WERTHEIM & CO. INCORPORATED DEAN WITTER REYNOLDS INC. By: SCHRODER WERTHEIM & CO. INCORPORATED By:__________________________________ Managing Director -31- SCHEDULE I Underwriter Number of Firm Securities ----------- ------------------------- Schroder Wertheim & Co. Incorporated . . . . . . . Dean Witter Reynolds Inc.. . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . ----------- ----------- ----------- -32- EX-10.1 3 EXHIBIT 10.1 AMENDED AND RESTATED DECRANE AIRCRAFT HOLDINGS, INC. 1993 SHARE INCENTIVE PLAN 1. GENERAL. This Amended and Restated Share Incentive Plan (the "Plan") provides eligible employees of DeCrane Aircraft Holdings, Inc., an Ohio corporation (the "Company"), and its subsidiaries with the opportunity to acquire or expand their equity interest in the Company by making available for award or purchase Common Shares, without par value, of the Company ("Common Shares"), through the granting of nontransferable options to purchase Common Shares ("Stock Options"), the granting of Common Shares subject to temporal restrictions on transfer and substantial risks of forfeiture ("Restricted Stock"), and the granting of nontransferable options to receive payments based on the appreciation of Common Shares ("SARs"). Stock Options, Restricted Stock and SARs shall be collectively referred to herein as "Grants," and an individual grant of Stock Options. Restricted Stock or SARs shall be individually referred to herein as a "Grant". It is intended that key employees may be granted simultaneously or from time to time, Stock Options that qualify as incentive stock options ("Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or Stock Options that do not so qualify ("Non-qualified Stock Options"). No provision of the Plan is intended or shall be construed to grant employees alternative rights in any Incentive Stock Option granted under the Plan so as to prevent such Option from qualifying under Section 422 of the Code. The Plan is intended to conform to the extent necessary with all provisions of the Securities Exchange Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including, without limitation, Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and Stock Options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and Stock Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 2. PURPOSE OF THE PLAN. The purpose of the Plan is to provide continuing incentives to key employees of the Company and of any subsidiary corporation of the Company , by encouraging such key employees to acquire new or additional share ownership in the Company, thereby increasing their proprietary interest in the Company's business and enhancing their personal interest in the Company's success. For purposes of the Plan, a "subsidiary corporation" consists of any corporation fifty percent (50%) of the stock of which is directly or indirectly owned or controlled by the Company. 3. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective upon its adoption by the Board of Directors, subject to approval by holders of a majority of the outstanding shares of voting capital stock of the Company. If the plan is not so approved within twelve (1) months after the date the Plan is adopted by the Board of directors, the Plan and any Grants made hereunder shall be null and void. However, if the Plan is so approved, no further shareholder approval shall be required with respect to the making of Grants pursuant to the Plan, except as provided in Section 12 hereof. 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee selected by the Board of Directors of the Company (the "Board") by majority and composed of no fewer than two (2) members of the Board (such committee, the "Administrator"). No person shall be appointed to the Administrator who, during the one-year period immediately preceding such person's appointment to the Administrator, has received any Grants under the Plan or any similar stock option or stock incentive plan, other than a formula- based plan, maintained by the Company or any subsidiary corporation. A member of the Administrator shall not be eligible to participate in the Plan while serving on the Administrator. A majority of the members of the Administrator shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present (or acts unanimously approved in writing by the members of the Administrator) shall constitute binding acts of the Administrator. Subject to the terms and conditions of the Plan, the Administrator shall be authorized and empowered: (a) To select the key employees to whom Grants may be made; (b) To determine the number of Common Shares to be covered by any Grant; (c) To prescribe the terms and conditions of any Grants made under the Plan, and the form(s) and agreement(s) used in connection with such Grants, which shall include agreements governing the granting of Restricted Stock, Stock Options and/or SARs, which may provide that the stock which is the subject of any such Grant shall be subject to the restrictions on transfer contained in any agreement -2- in effect among the Company and one or more of its shareholders; (d) To determine the time or times when Stock Options and/or SARs will be granted and when they will terminate in whole or in part; (e) To determine the time or times when Stock Options and SARs that are granted may be exercised; (f) To determine, at the time a Stock Option is granted under the Plan, whether such Stock Option is an Incentive Stock Option entitled to the benefits of Section 422 of the Code; (g) To establish any other Stock Option agreement provisions not inconsistent with the terms and conditions of the Plan or, where the Stock Option is an Incentive Stock Option, with the terms and conditions of Section 422 of the Code; and (h) To determine whether SARs will be made part of any Grants consisting of Stock Options, and to approve any SARs made part of any such Grants pursuant to Section 9 hereof. 5. EMPLOYEES ELIGIBLE FOR GRANTS. Grants may be made from time to time to those key employees of the Company or a subsidiary corporation who are designated by the Administrator in its sole and exclusive discretion. Key employees may include, but shall not necessarily be limited to, members of the Board of Directors (excluding members of the Administrator) and officers of the Company and any subsidiary corporation; however, Stock Options intended to qualify as Incentive Stock Options shall only be granted to key employees while actually employed by the Company or a subsidiary corporation. The Administrator may grant more than one Stock Option, with or without SARs, to the same key employee. No Stock Option shall be granted to any key employee during any period of time when such key employee is on a leave of absence. 6. SHARES SUBJECT TO THE PLAN. The shares to be issued pursuant to any Grant made under the Plan shall be Common Shares. Either Common Shares held as treasury stock or authorized and unissued Common shares, or both, may be so issued, in such amount or amounts within the maximum limits of the Plan as the Administrator shall from time to time determine. In the event a SAR is granted in tandem with a Stock Option pursuant to Section 9 and such SAR is thereafter exercised in whole or in part, then such Stock Option or the portion thereof to which the duly exercised SAR relates shall be deemed to have been exercised for purposes of such -3- Stock Option, but may be made available for reoffering under the Plan to any eligible employee. Subject to the provisions of the next succeeding paragraph of this Section 6 and the provisions of Section 7(h), the aggregate number of Common Shares that can be actually issued under the Plan (exclusive of Restricted Stock forfeited under the Plan before the holder thereof received any benefits of ownership, such as dividends) shall be eight hundred sixty-seven thousand (867,000) Common shares. If, at any time subsequent to the date of adoption of the Plan by the Board of Directors, the number of Common Shares are increased or decreased, or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether as a result of a stock split, stock dividend, combination or exchange of shares, redesignation, merger, consolidation, recapitalization or otherwise): (1) there shall automatically be substituted for each Common Share subject to an unexercised Stock Option or SAR (in whole or in part) granted under the Plan, the number and kind of shares of stock or other securities into which each outstanding Common share shall be changed or for which each such Common Share, shall be exchanged; (ii) the option price per Common share or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price for the securities subject to a Stock Option or SAR shall remain the same as immediately prior to such event; and (iii) any outstanding Restricted Stock that is converted, exchanged or otherwise changed into a different number or kind of stock or security shall continue to be subject to any such Restricted Stock. In addition to the foregoing, the Administrator shall be entitled in the event of any such increase, decrease or exchange of Common Shares to make other adjustments to the securities subject to a Stock Option or SAR, the provisions of the Plan, and to any related Stock Option or SAR agreements (including adjustments which may provide for the elimination of fractional shares), where necessary (under Section 422(a) (2) of the code or otherwise) to preserve the terms and conditions of any Grants hereunder. 7. STOCK OPTION PROVISIONS. (a). GENERAL. The Administrator may grant to key employees (also referred to as "Optionees") nontransferable Stock Options that either qualify as Incentive Stock Options under Section 422 of the Code or do not so qualify. However, any Stock Option which is an Incentive Stock Option shall only be granted within 10 years from the earlier of (I) the date this Plan is -4- adopted by the Board of directors of the Company and (ii) the date this Plan is approved by the shareholders of the Company. (b) STOCK OPTION PRICE. The option price per Common Share which may be purchased under an Incentive Stock Option under the Plan shall be determined by the Administrator at the time of Grant, but shall not be less than one hundred percent (100%) of the fair market value of a Common Share, determined as of the date such Option is granted; however, if a key employee to whom an Incentive Stock Option is granted is, at the time of the grant of such Option, an "owner" as defined in Section 422(b) (6) of the Code (modified as provided in Section 424(d) of the Code) of more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any subsidiary corporation (a "Substantial Shareholder"), the price per Common Share of such Option, as determined by the Administrator, shall not be less than one hundred ten percent (110%) of the market value of a Common share under each Stock Option granted pursuant to the Plan which is not an Incentive Stock Option shall be determined by the Administrator at the time of Grant. Except as specifically provided above, the fair market value of a Common Share shall be determined in accordance with procedures to be established by the Administrator. The day on which the Administrator approves the granting of a Stock Option shall be considered the date on which such Option is granted. (c) PERIOD OF STOCK OPTION. The Administrator shall determine when each Stock Option is to expire. However, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date upon which such Option is granted. Further, no Incentive Stock Option granted to an employee who is a Substantial Shareholder at the time of the grant of such Option shall be exercisable after the expiration of (5) years from the date of grant of such Option. (d) LIMITATION ON EXERCISE AND TRANSFER OF STOCK OPTIONS. Only the key employee to whom a Stock Option is granted may exercise such Option, except where a guardian or other legal representative has been duly appointed for such employee, and except as otherwise provided in the case of such employee's death. No Stock Option granted hereunder shall be transferable by an optionee other than by will or the laws of descent and distribution. No Stock Option granted hereunder may be pledged or hypothecated, nor shall any such Option be subject to execution, attachment or similar process. (e) EMPLOYMENT, HOLDING PERIOD REQUIREMENTS FOR CERTAIN OPTIONS. The Administrator may condition any Stock Option granted hereunder upon the continued employment of the optionee by the Company or by a subsidiary corporation, and may make any such Stock -5- Option immediately exercisable. However, the Administrator will require that, from and after the date of grant of any Incentive Stock Option granted hereunder until the day three (3) months prior to the date such Option is exercised, such optionee must be an employee of the Company or of a subsidiary corporation, but always subject to the right of the Company or any such subsidiary corporation to terminate such optionee's employment during such period (except if the optionee's employment is terminated due to death or permanent and total disability, in which event such period shall be one year). Each Stock Option shall be subject to such additional restrictions as to the time and method of exercise as shall be prescribed by the Administrator. Upon compliance with any condition or requirement imposed by the Administrator pursuant to the foregoing, a Stock Option or the appropriate portion thereof may be exercised in whole or in part from time to time during the option period; however, such exercise right(s) shall be limited to whole shares. (f) PAYMENT FOR STOCK OPTION PRICE. A Stock Option shall be exercised by an optionee giving written notice to the Company of his intention to exercise the name, accompanied by full payment of the purchase price in cash or by check or, with the consent of the Administrator, in whole or in part with a surrender of Common Shares having a fair market value on the date of exercise equal to that portion of the purchase price for which payment in cash or check is not made. The Administrator may, in its sole discretion, approve other methods of exercise for a Stock Option or payment o the option price, provided that no such method shall cause any option to not qualify under Section 422 of the Code, or cause any Common Share issued in connection with the exercise of an option not to be a fully paid and non-assessable Common Share. (g) CERTAIN REISSUANCES OF STOCK OPTIONS. To the extent Common Shares are surrendered by an optionee in connection with the exercise of a Stock Option in accordance with Section 7(f), the Administrator may in its sole discretion grant new Stock Options to such optionee (to the extent Common Shares remain available for Grants), subject to the following terms and conditions: (i) The number of Common shares shall be equal to the number of Common Shares being surrendered by the optionee; (ii) The option price per Common Share shall be equal to the fair market value of Common Shares, determined on the date of exercise of the Stock Options whose exercise caused such Grant; and (iii) The terms and conditions of such Stock Options shall in all other respects replicate such terms -6- and conditions of the Stock Options whose exercise caused such Grant, except to the extent such terms and conditions are determined to not be wholly consistent with the general provisions of this Section 7, or in conflict with the remaining provisions of this Plan. (h) CANCELLATION AND REPLACEMENT OF STOCK OPTIONS AND RELATED RIGHTS. The Administrator may at any time or from time to time permit the voluntary surrender by an optionee who is the holder of any outstanding Stock Options under the Plan, where such surrender is conditioned upon the granting to such optionee of new Stock Options for such number of shares as the Administrator shall determine, or may require such voluntary surrender as a condition precedent to the grant of new Stock Options. The Administrator shall determine the terms and conditions of new Stock Options, including the prices at and periods during which they may be exercised, in accordance with the provisions of this Plan, all or any of which may differ from the terms and conditions of the Stock Options surrendered. Any such new Stock Options shall be subject to all the relevant provisions of this Plan. The Common Shares subject to any Stock Option so surrendered, and/or any Common Shares subject to any Stock Option that has lapsed, been forfeited, or been cancelled and extinguished in connection with the exercise of an SAR, shall no longer be charged against the limitation provided in Section 6 of this Plan and may again become shares subject to the Plan. The granting of new Stock Options under this plan shall be considered for the purposes of the Plan as the granting of new Stock Options and not an alteration, amendment or modification of the Plan or of the Stock Options being surrendered. (i) LIMITATION ON EXERCISABLE INCENTIVE STOCK OPTIONS. The aggregate fair market value of the Common Shares first becoming subject to exercise as Incentive Stock Options by a key employee during any given calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). Such aggregate fair market value shall be determined as of the date such Option is granted, taking into account, in the order in which granted, any other incentive stock options granted by the Company, or by a parent or subsidiary thereof. (j) WITHHOLDING OF TAXES. The Administrator may, in its sole discretion, require, as a condition to any Grant or to the delivery of certificates for shares issued hereunder, that the optionee pay to the Company, in cash, any federal, state or local taxes of any kind required by law to be withheld with Respect to any Grant or any delivery of Common Shares upon exercise thereof. The Administrator, in its sole discretion, may permit optionees to pay such taxes through the withholding of Common Shares otherwise deliverable to such optionee in connection with such Grant or the -7- delivery to the Company of Common Shares otherwise acquired by the optionee. The fair Market Value of Common Shares withheld by the Company or tendered to the Company for the satisfaction of tax withholding obligations under this Section 7 (j) shall be determined on the date such Common Shares are withheld or tendered. The Company, to the extent permitted or required by law, shall have the right to deduct from any payment of any kind (including salary, bonus, severance or insurance proceeds) otherwise due to an optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any Grant or to the delivery of Common Shares under the Plan, or to retain or sell without notice a sufficient number of Common Shares to be issued to such optionee to cover any such taxes, provided that the Company shall not sell any such Common Shares if such sale would be considered a sale by such optionee for purposes of Section 16 of the Exchange Act. 8. RESTRICTED STOCK. (a) GRANT. The Administrator shall determine the key employees to whom, and the time or times at which, Grants of Restricted Stock will be made, the number of shares of Restricted Stock to be granted, the price (if any) to be paid by such key employees (subject to Section 8 (b)), the time or times within which such Restricted Stock grants may be subject to forfeiture, and the other terms and conditions of the grants in addition o those set forth in Section 8 (b). The Administrator may condition the grant of Restricted Stock upon the attainment of specified performance goals or such other factors as the Administrator may determine in its sole discretion. (b) TERMS AND CONDITIONS. Restricted Stock granted under the Plan shall contain any terms and conditions, not inconsistent with the provisions of the Plan, which are deemed desirable by the Administrator. A key employee who receives a grant of Restricted Stock shall not have any rights with respect to such Grant unless and until such key employee has executed an agreement evidencing such Grant in the form approved from time to time by the Administrator, has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Grant. In addition, Restricted Stock granted under the Plan shall be subject to the following terms and conditions: (i) The purchase price for Common Shares consisting of Restricted Stock, if any, will be specified by the Administrator. (ii) Grants of Restricted stock shall only be accepted by executing a Restricted Stock agreement and paying, in cash or by check, whatever price (if any) is required under Section 8 (b) (I). -8- (iii) Each key employee granted Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such key employee and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Grant. (iv) Any stock certificates evidencing Common Shares consisting of Restricted Stock shall either (a) be held in custody by the Company until the employment and other restrictions thereon shall all have lapsed; or (B) be affixed with a legend, identifying such Shares as Restricted Stock and expressly prohibiting the sale, transfer, tender, pledge assignment or encumbrance of such Shares, as the Administrator shall determine. With respect to any Restricted Stock held in custody by the Company, the key employee granted such Restricted Stock shall deliver to the Company a stock power, endorsed in blank, relating to the Common Shares represented by such Stock. With respect to any Restricted Stock held by a key employee under legend, the key employee granted such Restricted Stock shall deliver to the Company an acknowledgement that such Stock remains subject to a substantial risk of forfeiture in the event of termination of employment under certain circumstances, and that the certificates representing ownership of such Stock will be surrendered to the Company immediately upon any such termination of employment. (v) Subject to the provisions of the Plan and the Restricted Stock agreement, during a temporal period set by the Administrator and commencing with the date of such Grant (the "Restriction Period"), a key employee shall not be permitted to sell, transfer, tender, pledge, assign or otherwise encumber any Restricted Stock granted under the Plan. However, the Administrator, in its sole discretion, may provide for the lapse of such transfer or other restrictions in installments, or accelerate or waive such restrictions in whole or in part, based on service, performance or other factors and criteria selected by the Administrator. (vi) Except as provided in this Section 8(b) (vi) and in Section 8(b) (v), a key employee shall have, with respect to shares of Restricted Stock granted to him, all of the rights of a shareholder of the -9- Company, including the right to vote such Stock and the right to receive any dividends thereon. The Administrator, in its sole discretion and as determined at the time of a Grant of Restricted Stock, may permit or require cash dividends otherwise due and payable to be deferred and, if the Administrator so determines, reinvested either in additional Restricted Stock (to the extent Common Shares are available), or otherwise. Stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock. As Restricted Stock, such additional Common Shares will be subject to the same restrictions, terms and conditions applicable to the Restricted Stock with respect to which such additional Common Shares were issued. (vii) No Restricted Stock shall be transferable by a key employee other than by will or by the laws of descent and distribution. (viii) In the event Restricted Stock is forfeited by a key employee, the Company will refund to such key employee any payment(s) made by such key employee to purchase such Stock, promptly upon such forfeiture (and any corresponding surrender of stock certificates). (c) MINIMUM VALUE PROVISIONS. To ensure that Grants of Restricted Stock actually reflect the performance of the Company and service of the key employee, the Administrator my provide, in its sole discretion, for a tandem performance- based award, or other grant, designed to guarantee a minimum value, payable in cash or Common Shares, to the recipient of a Restricted Stock Grant, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Administrator. 9. STOCK APPRECIATION RIGHTS. A key employee may be granted the right to receive a payment based on the increase in the value of Common Shares occurring after the date of such Grant; such rights shall be known as Stock Appreciation Rights ("SARs"). SARs may (but need not) be granted to a key employee in tandem with, and exercisable in lieu of exercising, a Grant of Stock Options. SARs will be specifically granted upon terms and conditions specified by the Administrator, if the Company is the employer of the key employee, or by a subsidiary corporation subject to the Administrator's approval, if such subsidiary corporation is the employer of the key employee. No optionee shall be entitled to SAR rights solely as a result of the grant of a Stock Option to him. Any such rights, if granted, may only be exercised by the holder thereof, either with respect to all, or a portion, of the Stock -10- Option to which it applies. When granted in tandem with a Stock Option, an SAR shall provide that the holder of a Stock Option shall have the right to receive an amount equal to one hundred percent (100%) of the excess, if any, of the fair market value of the Common Shares covered by such Option, determined as of the date of exercise of such SAR by the Administrator (in the same manner as such value is determined for purposes of the granting of Stock Options), over the price to be paid for such Common Shares under such Option. Such amount shall be payable by either the Company or the subsidiary corporation, whichever such corporation is the employer of the key employee, in one or more of the following manners, as determined by the Administrator: (a) cash (or check); (b) fully paid Common Shares having a fair market value equal to such amount; or (c) a combination of cash (or check) and Common Shares. In no event may any person exercise any SARs granted hereunder unless (I) such person is then permitted to exercise the Stock Option or the portion thereof with respect to which such SARs relate, and (ii) the fair market value of the Common Shares covered by the Stock Option, determined as provided above, exceeds the option price of such Common Shares. Upon the exercise of any SARs , the Stock Option, or that portion thereof to which such SARs relate, shall be canceled and automatically extinguished. A SARs granted in tandem with a Stock Option hereunder shall be made a part of the Stock Option agreement to which such SAR relates, in a form approved by the Administrator and not inconsistent with this Plan. The granting of a Stock Option or SAR shall impose no obligation upon the optionee to exercise such Stock Option or SAR. The Company's or a subsidiary corporation's obligation to satisfy SARs shall not be funded or secured in any manner. No SAR granted hereunder shall be transferable by the key employee granted such SAR, other than by will or the laws of descent and distribution. After the Grant of an SAR, an optionee intending to rely on an exemption from Section 16(b) of the Exchange Act shall be required to hold such SAR for six months (6) months from the date the price for such SAR is fixed to the date of cash settlement. Additionally, in order to remain exempt from Section 16(b) of the Exchange Act, a SAR must be exercised by an optionee subject to such Section only during the period beginning on the third business day following the release of a summary statement of the Company's quarterly or annual sales and earnings and ending on the twelfth business day following said date. -11- 10. TERMINATION OF EMPLOYMENT. If a key employee ceases to be an employee of the Company and every subsidiary corporation, for a reason other than death, retirement, "permanent and total disability" (as defined below) or such key employee's employment is terminated "without cause" (as defined below), his Grants shall, unless extended by the Administrator on or before his date of termination of employment, terminate on the effective date of such termination of employment. Neither the key employee nor any other person shall have any right after much date to exercise all or any part of his Stock Options or SARs, and all Restricted Stock which is not vested or otherwise subject to restriction shall thereupon be forfeited, and/or declared void and without value. If termination of employment is due to death or permanent and total disability or is without cause, then outstanding Stock Options and SARs may be exercised within the one (1) year period ending on the anniversary of such death, permanent and total disability or termination without cause (except that, with respect to Incentive Stock Options held by key employees whose employment is terminated without cause, such Incentive Stock Options must be exercised within three months of the date of such termination). In the case of death, such outstanding Stock Options and SARs shall be exercised by such key employee's estate, or the person designated by such key employee by will, or as otherwise designated by the laws of descent and distribution. Notwithstanding the foregoing, in no event shall any Stock Option or SAR be exercisable after the expiration of the option period, and in the case of exercises made after a key employee's death, not to any greater extent then such key employee would have been entitled to exercise such option or SAR at the time of his death. Restricted Stock held by a key corporation terminates by reason of death shall thereupon vest and all restrictions and risks of forfeiture thereon shall thereupon lapse. Subject to the discretion of the Administrator, in the event a key employee terminates employment with the Company and all subsidiary corporations because of normal or early retirement under any pension plan or retirement plan hereafter adopted by the Company, or (in the case of Restricted Stock) permanent and total disability, (a) any then-outstanding Stock Options and/or SARs held by such key employee shall lapse at the end of the term of such Stock Option or SAR, or thirty (3) days after such retirement, whichever first occurs; and (b) any Restricted Stock held by such key employee shall thereafter vest and any applicable restrictions shall lapse, to the extent such Restricted Stock would have become vested or no longer subject to restriction within one year from the time of termination had the key employee continued to fulfill all of the conditions of the Restricted Stock during such period (or on such accelerated basis as the Committee may determine at or after date of Grant). -12- For purposes hereof, "permanent and total disability" means a permanent and total disability as defined in "without cause" means termination of the employee's employment by the Company for reasons other than (i) conviction of the employee for a felony or for any crime or offense lesser than a felony involving the property of the Company or a subsidiary corporation or affiliate of the Company; (ii) conduct by the employee that has caused demonstrable and serious injury to the Company or a subsidiary, monetary or otherwise; or (iii) substandard performance, or material misconduct or negligence in the performance, of the employee's duties in the reasonable judgment of the Board. In the event an employee of the Company or one of its subsidiary corporations is granted a leave of absence by the Company or such subsidiary corporation to enter military service or because of sickness, his employment with the Company or such subsidiary corporation shall not be considered terminated, and he shall be deemed an employee of the Company or such subsidiary corporation during such leave of absence or any extension thereof granted by the Company or such subsidiary corporation. 11. AMENDMENTS TO PLAN. The Administrator is authorized to interpret this Plan and from time to time adopt any rules and regulations for carrying out this Plan that it may deem advisable. Subject to the approval of the Board of Directors of the Company, the Administrator may at any time amend, modify, suspend or terminate this Plan. In no event, however, without the approval of shareholders, shall any action of the Administrator or the Board of Directors result in: (a) Materially amending, modifying or altering the eligibility requirements provided in Section 5 hereof; (b) Materially increasing, except as provided in Section 6 hereof, the maximum number of Common Shares that may be made subject to Grants; or (c) Materially increasing the benefits accruing to participants under this Plan; except to conform this Plan and any agreements made hereunder to changes in the Code or required by governing law. 12. INVESTMENT REPRESENTATION, APPROVALS AND LISTING. The Administrator may, if it deems appropriate, condition its grant of any Stock Option hereunder upon receipt of the following investment representation from the optionee: -13- "I agree that any Common Shares of DeCrane Aircraft Holdings, Inc. which I may acquire by virtue of this Stock Option shall be acquired for investment purposes only and not with a view to distribution or resale, and may not be transferred, sold, assigned, pledged, hypothecated or otherwise disposed of by me unless (I) a registration statement or post-effective amendment to a registration statement under the Securities Act, with respect to said Common Shares has become effective so as to permit the sale or other disposition of said shares by me; or (ii) there is presented to DeCrane Aircraft Holdings, Inc. an opinion of counsel satisfactory to DeCrane Aircraft Holdings, Inc. to the effect that the sale or other proposed disposition of said Common Shares by me may lawfully be made otherwise than pursuant to an effective registration statement or post-effective amendment to a registration statement relating to the said shares under the Securities Act of 1933, as amended." The Company shall not be required to issue any certificate or certificates for Common Shares upon the exercise of any Stock Option or a SAR granted under this Plan prior to (I) the obtaining of any approval from any governmental agency which the Administrator shall, in its sole discretion, determine to be necessary or advisable; (ii) the admission of such shares to listing on any national securities exchange on which the Common Shares may be listed; (iii) the completion of any registration or other qualifications of the Common Shares under any state or federal law or ruling or regulations of any governmental body which the Administrator shall, in its sole discretion, determine to be necessary or advisable or the determination by the Administrator, in its sole discretion, that any registration or other qualification of the Common Shares is not necessary or advisable; or (iv) the obtaining of an investment representation from the optionee in the form stated above or in such other form as the Administrator, in its sole discretion, shall determine to be adequate. 13. GENERAL PROVISIONS. The form and substance of Stock Option Agreements, Restricted Stock agreements, and SAR agreements made hereunder, whether granted at the same or different times, need not be identical. Nothing in this Plan or in any Stock Option, Restricted Stock or SAR agreement shall confer upon any employee any right to continue in the employ of the Company or any of its subsidiary corporations or affiliates or to interfere with or limit the right of the Company or any subsidiary corporation or affiliate to terminate his employment at any time, with or without cause. Nothing contained in this Plan or in any Stock Option agreement or SAR shall be construed as entitling any optionee to any rights of a shareholder as a result of the grant of Stock Option or an SAR, until such time as Common Shares are actually issued to such optionee pursuant to the exercise of such option or -14- SAR. This Plan may be assumed by the successors and assigns of the Company. The liability of the Company under this Plan and any sale made hereunder is limited to the obligations set forth herein with respect to such sale and no term or provision of this Plan shall be construed to impose any liability on the Company in favor of any employee (or any other party acting on his behalf or in his stand) with respect to any loss, cost or expense which such employee or party may incur in connection with or arising out of any transaction in connection with this Plan. The cash proceeds received by the Company from the issuance of Common Shares pursuant to this Plan will be used for general corporate purposes. The expense of administering this Plan shall be borne by the Company. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Plan. 14. PROVISIONS APPLICABLE SOLELY TO INSIDERS. The following provisions shall apply only to persons who are subject to Section 16 of the Exchange Act with respect to securities of the Company ("Insiders"), and shall apply to Insiders notwithstanding any provision of the Plan to the contrary: (a) No Insider shall be permitted to transfer any security of the company acquired by him, except to the extent permitted by 17 C.F.R. Section 240.16a-2(d) (1), upon the exercise of any Stock Option, until at least six months and one day after the later of (I) the day on which such security is granted to the Insider or (ii) the day on which the exercise or conversion price of such security is fixed. (b) An Insider may elect to have shares withheld from a Grant or tender shares to the Company in order to satisfy the tax withholding consequences of a Grant only during the period beginning on the third business day following the date on which the Company releases the financial information specified in 17 C.F.R. Section 240.16b-3(e) (1) (ii) and ending on the twelfth business day following such date. Notwithstanding the foregoing, an Insider may elect to have shares withheld from a Grant in order to satisfy tax withholding consequences thereof by providing the Company with a written election to so withhold at least six months in advance of the withholding of shares otherwise issuable upon exercise of a Stock Option. 15. TERMINATION OF THIS PLAN. This Plan shall terminate on February 1, 2003, and thereafter no Stock Options, Restricted Stock or SARs shall be granted hereunder. All Stock Options and SARs outstanding at the time of termination of this Plan shall continue in full force and effect according to their terms and the terms and conditions of this Plan. -15- EX-10.2 4 EXHIBIT 10.2 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-10.3 5 EXHIBIT 10.3 EXHIBIT 10.3 Employment Agreement dated September 1, 1994 between the Company and R. Jack DeCrane. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 1st day of September, 1994 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and R. Jack DeCrane ("Executive") and is effective as of September 1, 1994 (the "Effective Date"). RECITALS Executive is currently employed by the Company in the capacity of Chief Executive Officer and is one of the key executives of the Company. Executive agrees that in order to maintain consistency of management within the Company, he will perform his duties as Chief Executive Officer. The Board of Directors of the Company (the "Board") is encouraging Executive to perform his assigned duties without distraction. NOW THEREFORE, in consideration of the premises and mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Executive and the Company hereby agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the Company and Executive agree that Executive will remain in the employ of the Company through August 31, 1998. The "Term of Agreement" as used herein shall refer to the period commencing on the Effective Date and ending on August 31, 1998. 2. DUTIES. Executive agrees to serve the Company during the Term of Agreement, to devote his full business time to the Company and to promote the interests of the Company; provided, however, that nothing contained herein shall prevent Executive from serving as a director or trustee of any other corporation with the consent of the Company, which shall not be unreasonably withheld. The Company agrees that it will not assign duties inconsistent with those attendant to the position of Chief Executive Officer and a director and will not decrease his responsibilities as currently in effect. Except as so limited, the powers and duties of Executive are to be more specifically determined by the Board from time to time. 3. COMPENSATION AND BENEFITS. During the Term of Agreement, Executive shall receive the following compensation and benefits: a. SALARY. During the Term of the Agreement, the Company shall pay Executive, during the first year of the Term of Agreement, an annual salary of $180,000, payable at least on a semi-monthly basis and during each subsequent year of the Term of Agreement, an annual salary (payable at least on a semi-monthly basis) at least equal to Executive's salary for the immediately preceding year plus an amount calculated in a manner at least as favorable to Executive as the manner in which the pay increases for other executives of the Company are calculated; b. BONUS. During the Term of Agreement, the Company shall pay Executive annual bonus payments as a percentage of his annual base salary then in effect, based upon the Company's achievement of written mutually agreed performance goals as set forth in the Company's operating plan. Performance goals shall be established by the Board annually and shall be based on pre-tax earnings of the Company. Pre-tax earnings ("EBITDA") shall be calculated to mean the earnings of the Company and its subsidiaries for the applicable fiscal year before interest and taxes, before portions of cash expenses paid to prior owners of business acquired by the Company which are accounted for as deferred consideration with respect to such acquisitions, before amortization of non-cash expenses such as noncompetition agreements, personal service contracts, prepaid consulting, etc., before depreciation, before amortization of organization costs, as determined in accordance with generally accepted accounting principles, except that the EBITDA of each subsidiary acquired by the Company during the fiscal year shall be accounted for as if such subsidiary had been acquired on the first day of such fiscal year. The amount of bonus, calculated as a percentage of Executive's salary, payable to Executive is set forth below: Level of achievement Bonus -------------------- ----- EBITDA equals 80% of performance goal 30% of annual base salary EBITDA equals 90% of performance goal 40% of annual base salary EBITDA equals 100% of performance goal 50% of annual base salary EBITDA equals 110% of performance goal 60% of annual base salary Said bonus shall be deemed earned on a pro rata basis throughout the year. c. INCENTIVE STOCK OPTIONS. (i) Pursuant to the DeCrane Aircraft Holdings, Inc. 1993 Share Incentive Plan (the "Plan"), Executive shall receive options to purchase shares of the Company's common stock subject to the following terms: (1) Upon execution of this Agreement, the Company shall grant to Executive options to purchase 275,000 shares of the Company's common stock, such options to become exercisable according to the schedule set forth on Exhibit A hereto; 2 (2) All such options shall have an exercise price of fifteen cents ($.15) per share. (3) The options shall be exercisable for ten years from the date of grant. (4) All such options shall be immediately vested on the date of grant. (5) All such options shall be subject to the terms and conditions of the Plan. d. BENEFITS. During the Term of Agreement, the Company shall provide and maintain in full force and effect through existing plans at least the types and amounts of group insurance (including conversion features) and benefits, including life (in an amount at least equal to $1,000,000), health, disability and hospitalization insurance, and other health care benefits, including medical, hospital and surgical benefits and health care benefits for Executive, his spouse and eligible dependents (collectively "Health Care Benefits") to which Executive was entitled in the immediately preceding year or Health Care Benefits provided by the Company to other senior executives (whichever would result in greater Health Care Benefits to Executive); provided, however, that in no event will the Health Care Benefits (but not including life insurance) be substantially different or more expensive than those provided by the Company to other senior executives; e. PROFIT SHARING PLAN. The Company agrees that Executive will be a participant on the same basis as all other employees in any profit sharing plan that may be implemented during the Term of Agreement; f. TRAVEL. During the Term of Agreement, the Company shall reimburse all business-related travel, entertainment and other expenses; g. VACATION. During the Term of Agreement, the Company shall provide Executive with four weeks paid vacation time, annually; and 4. TERMINATION. a. FOR CAUSE. The Company may terminate this Agreement for "Cause" if: (i) Executive commits any material act of dishonesty constituting a felony 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) Executive willfully and continually fails to substantially perform his duties with the Company (other than any such failure resulting from incapacity due to 3 mental or physical illness) after a written demand for substantial performance is delivered to Executive by the Board which demand specifically identifies the manner in which the Board believes that Executive has not substantially performed his duties, and such failure results in demonstrable material injury to the Company. This Agreement shall in no event be considered terminated by the Company for Cause if such termination was a result of (i) Executive's bad judgment or negligence, or (ii) any act or omission without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, or (iii) any act or omission by Executive believed in good faith to have been or not opposed to the best interests of the Company, or (iv) 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 regulations of the Company or the laws of the State of Ohio as in effect at the time of such act or omission. This Agreement shall in no event be considered terminated by the Company for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of two-thirds of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for him, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct set forth above in clauses (i) and (ii) of the first sentence of this paragraph and specifying the particulars thereof in detail. b. WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. In the event the Company terminates this Agreement without Cause or Executive terminates this Agreement for Good Reason, the Company shall pay to Executive for one year the following: (i) base salary plus bonus in amount equal to the amount earned in the immediately preceding year, payable at least on a semi-monthly basis. Executive's right to receive compensation from the Company pursuant hereto shall not be affected by Executive's receipt of compensation in connection with any subsequent employment by any other corporation or entity; (ii) Health Care Benefits commensurate with those provided by the Company to other senior executives for Executive, his spouse and eligible dependents; provided, however, that in no event will the Health Care Benefits (but not including life insurance) be substantially different or more expensive than those provided by the Company to other senior executives; 4 (iii) the cost of relocation of Executive's belongings from California to Copley, Ohio in an amount not to exceed $50,000; and (iv) one-half of the cost of any outplacement services incurred by Executive; provided that the amount payable by the Company shall not exceed $20,000. For purposes of this Agreement, "Good Reason" shall exist if (i) the Company fails to honor its obligations hereunder, or (ii) the Company requests Executive's resignation or retirement. c. DEATH. In the event of Executive's death, the Company shall pay to Executive's personal representative (i) base salary for one year, payable at least on a semi-monthly basis, and (ii) Executive's bonus through year-end. The Company shall also provide Health Care Benefits commensurate with those provided by the Company to other senior executives for Executive's spouse and eligible dependents for one year. d. DISABILITY. In the event Executive becomes Disabled (as hereinafter defined), the Company shall pay to Executive (i) base salary for one year, payable at least on a semi-monthly basis, which year shall be deemed to have commenced on the first day of the 180 day disability period described below, and (ii) Executive's bonus through year-end. The Company shall also provide Health Care Benefits commensurate with those provided to other senior executives for Executive, his spouse and eligible dependents for one year. For purposes of this Agreement, Executive shall be considered "Disabled" only if, as a result of his incapacity due to mental or physical illness, he shall have been absent from his duties with the Company on a full-time basis for a period of 180 consecutive days, and (i) a physician selected by him and approved by the Board is of the opinion that he is suffering from total disability, and (ii) the Company has given Executive 30 days written notice of potential termination, and within said 30 day period thereafter, Executive has not returned to the full-time performance of his duties. During any period that Executive fails to perform his duties hereunder due to mental or physical illness prior to termination hereunder, Executive shall receive his full base salary at the rate then in effect. e. WITHOUT GOOD REASON. Executive may terminate the Agreement without Good Reason upon 90 days written notice to the Company. In the event Executive terminates the Agreement pursuant hereto, the Company shall, at its option, (i) pay to Executive, at least on a semi-monthly basis, an amount equal to his base salary for a period of one year or (ii) release Executive from the non-competition provision contained in paragraph 5 hereof. 5 5. NON-COMPETITION. Upon termination of this Agreement for any reason, except in the event this Agreement is terminated by Executive pursuant to paragraph 4(e) hereof and the Company makes an election under clause (ii) thereof, Executive agrees that (a) for a period of 12 months from the date of such termination, he will not, directly or indirectly, own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any corporation, partnership, proprietorship, firm or association or other business entity, or otherwise engage in any business which is engaged in, or competes with the business of the Company or any of its subsidiaries (as conducted on the date of such termination), and (b) for a period of 12 months from the date of such termination, he will not, directly or indirectly, employ or otherwise associate in business with any officer or employee of the Company or any of its subsidiaries, induce any officer or employee of the Company or any of its subsidiaries to terminate his or her relationship with the Company or induce any officer or employee to solicit business or have any interest in the ownership, management or control of any concern which does solicit business from any customer of record of the Company or any of its subsidiaries, which, to Executive's knowledge, was such at the time of termination of this Agreement. In the event of any breach by Executive of the restrictions in this paragraph, the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or future breach. Nothing in this paragraph shall be deemed to limited the Company's remedies at law or in equity for any breach by Executive hereof. 6. REGISTRATION RIGHTS AND SHAREHOLDER AGREEMENT. The Company covenants that it will use its best efforts to cause the Registration Rights Agreement and the Shareholder Agreement entered into by and among the Company, Executive and certain shareholders of the Company to be amended to provide that the incentive stock options granted pursuant to paragraph 3(c) of this Agreement and the common shares of the Company to be received upon exercise thereof shall be entitled to the same rights accorded to other shares owned by Executive pursuant to those agreements. If Company is unable to cause the amendment of said agreements, this Agreement shall be amended accordingly. 7. ASSIGNMENT. The rights of Executive under this Agreement are not transferable by assignment or otherwise, shall not by subject to commutation or encumbrance and shall not be subject to claims of Executive's creditors. 8. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Executive and his heirs, and the Company and any successor thereto, including any organization which shall succeed to substantially all of the business and property of the Company, whether by means of merge, consolidation, acquisition of substantially all of the assets of the Company or otherwise, including by operation of law (a "Successor Organization"). The Company shall not merge, reorganize, 6 consolidate, sell all or substantially all of its assets, combine by operation of law or otherwise with or to any Successor Organization unless, as a condition to such transaction, the Successor Organization assumes the obligations of the Company under this Agreement. For purposes of this Agreement, the "Company" shall include any Successor Organization. 9. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby and may not be amended or modified except by further written agreement of the parties. This Agreement shall be governed and construed by the laws of the State of Ohio. The invalidity of any term of this Agreement shall not invalidate or otherwise affect any other term. IN WITNESS WHEREOF, the parties have set hereunto their hands as of the date first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ---------------------------- Its: --------------------------- /s/ R. Jack DeCrane ------------------------------ R. Jack DeCrane 7 EXHIBIT A Options granted to Executive pursuant to Section 3(c)(i) of the Agreement shall become exercisable as follows: Level of Achievement Number of Shares -------------------- ---------------- Upon execution of the Agreement 50,000 45,000 45,000 45,000 45,000 45,000 EX-10.4 6 EXHIBIT 10.4 EXHIBIT 10.4 [LETTERHEAD] Employment Agreement dated June 28, 1993 between Registrant and Richard G. MacDonald June 28, 1993 Mr. Richard G. MacDonald 4 El Paseo Irvine, CA. 92175 Dear Dick, This will confirm our previous discussions concerning the terms under which you have accepted the position of President and Chief Operating Officer of D.A.H. Inc. Your base compensation will be at the rate of $150,000 per year with an initial base salary adjustment review occurring in the first quarter of 1994. Your benefit package will include the standard benefit program offered to all employees at Tri-Star with the addition of an executive term life insurance policy in the amount of $200,000. You will be subject to an incentive program that will allow you the opportunity to earn a annual cash incentive as follows: % of Plan Bonus as a % of Attainment Base Salary ---------- --------------- 80% 20% 90% 30% 100% 40% 110% 50% You have already received an option program for 200,000 shares of D.A.H. stock. This stock will have an equal five year vesting program and has a nominal exercise price of $.15 per share. We have agreed that you feel it is important to relocate you and your wife from your existing home to a location closer to the operating companies. You anticipate that the costs to move will be in the range of $25,000. D.A.H. agrees to reimburse you for these costs, but not until sometime in 1994, when the company has repaid the existing bridge loan and has adequate working capital availability. In the event of a termination for other than cause, your then base salary will be continued for a period of six months. I look forward to working together with you in making D.A.H. a highly profitable, growth oriented and successful company. /s/ R. Jack DeCrane R. Jack DeCrane EX-10.5 7 EXHIBIT 10.5 EXHIBIT 10.5 RESTRICTIVE COVENANT AGREEMENT AMONG REGISTRANT ADS ACQUISITION, INC. AND THE ALLARD CHILDREN'S TRUST F/B/O JOHN ALLARD. RESTRICTIVE COVENANT AGREEMENT This Restrictive Covenant Agreement ("Covenant") is among DeCrane Aircraft Holdings, Inc. ("Buyer"), ADS Acquisition, Inc. ("Acquisition", collectively with Buyer "Buyers") and The Allard Children's Trust f/b/o John R. Allard ("Seller"); A. Seller acknowledges that the consideration received from Buyers by Seller for these Covenants is adequate. B. Seller has owned and controlled ADS and has knowledge of the business, prospects, customers, needs of the customers, product specifications, key employees, future development of the business of ADS, each of which (if not otherwise known to the public or other persons) Seller acknowledges that ADS has advised Seller is either a trade secret ("Trade Secret") or confidential information ("Confidential Information") of ADS; and that to the extent that such Trade Secret or Confidential Information is a secret or is confidential, it is owned by and belongs to ADS. C. If Seller were to compete with the business of ADS, Seller's competition is likely cause material harm to ADS and diminish the value of the assets of ADS being sold by Seller to Buyers pursuant to the Agreement. D. The Business of ADS is worldwide; ADS's sales occur throughout the United States and in many foreign countries. If this Covenant were limited to the Commonwealth of Pennsylvania, its scope would not be sufficient to protect the interest of ADS. Based on the foregoing facts, Seller and Buyers agree as follows: 1. TERM OF THIS COVENANT AND CONSIDERATION. 1.1. As used in this Covenant, the "Term of this Covenant" shall mean a period commencing upon the Closing of the Agreement and expiring on September 17, 2000. Notwithstanding the foregoing, in the event that prior to the expiration hereof (i) ADS ceases business operations and there is no successor in interest to ADS's business (and ADS or the corporate entity of which it is a part is not a Debtor operating a business pursuant to any bankruptcy law), this Covenant shall terminate concurrent with such a cessation of business operations of ADS (ii) or within 10 days after notice from Seller to Buyers, any payment required pursuant to Section 1.2 is not made the restriction set forth in Section 2 shall terminate (Buyers shall nonetheless be liable for the payments pursuant to Section 1.2). 1.2 Buyers will pay to Sellers the aggregate sum of $636,363.64 which Seller is entitled to receive which amount shall be paid in 36 equal monthly installments commencing on the Closing Date. In the event that Buyers fail to make any payment pursuant to this Section 1.2 and such failure continues for a more than 10 days following notice from Seller to Buyers of such failure and demanding payment, Seller shall have the right to accelerate the full amount which is owing and unpaid pursuant to this Section 1.2 by giving notice to Buyers. Notwithstanding the foregoing sentence, Seller acknowledges that pursuant to an agreement with a senior lender, Buyers are prevented from making any payment pursuant to this Covenant at any time during which Buyers are in payment default to such senior lender. 2. COVENANT NOT TO COMPETE. For the Term of this Covenant, Seller shall not directly or indirectly engage in the design, engineering, manufacture or sale of dichroic liquid crystal displays ("LCDs") or dichroic LCD modules, or active matrix displays or otherwise engage in any business which competes with the business of ADS. "Directly or indirectly" means that Seller will not participate as an officer, director, shareholder, partner, member or consultant. The business of ADS is the design, engineering, manufacture and sale of dichroic LCDs, dichroic LCD modules and components incidental thereto to the Aircraft Industry. The "Aircraft Industry" means the manufacture, repair or assembly of airframes or component parts for commercial and military aircraft and aerospace applications. Notwithstanding the provisions of this Section 2, nothing shall prevent Seller from making a passive investment in up to 5% of the securities of any company whose common stock is traded on any national securities exchange or on NASDAQ. 3. COVENANT AGAINST HIRING. Seller understands that it is essential to the successful operation of the business to be acquired hereunder that Buyer retain substantially unimpaired ADS's operating organization. Seller agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of Allard not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, Seller shall not, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at any time during the 12 months preceding the Closing Date an employee, partner, representative, or manager of ADS. Provided, however, if the Buyer and Robert G. Martin sign a three (3) year employment agreement and thereafter Buyer terminates Robert G. Martin other than "for cause" and does not compensate him for the -2- three (3) year period from the Closing, then Allard and the Principal Shareholders shall have the right, after such termination, to employ Robert G. Martin. 4. COVENANT NOT TO USE TRADE SECRETS. Seller agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than Buyer or those designated in writing by Buyer) in any manner, directly or indirectly, any information or data relevant to the business of ADS, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than Buyer or those designated in writing by Buyer) to use, in any manner directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4. 5. RECITALS. The recitals are a part of this Covenant and shall be used in construing and interpreting it. 6. IRREPARABLE INJURY. Seller acknowledges that (i) the violation by Seller of any of the provisions of Sections 2, 3 and of this Covenant will result in irreparable injury to Buyers and that Buyers, shall be entitled to (i) the issuance of a temporary restraining order, (ii) a preliminary injunction and (iii) a permanent injunction to prohibit either the continuation or another breach of Sections 2, 3 or 4 of this Covenant. 7. MONETARY DAMAGES. Notwithstanding any provision of this Covenant, Buyers may seek and obtain monetary damages according to proof for any breach of this Covenant by Seller. 8. JURISDICTION. Seller and Buyers hereby consent to the jurisdiction and venue of the state and federal courts in the Commonwealth of Pennsylvania. -3- 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and, except as otherwise specifically provided in this Covenant, shall be given by commercial courier service providing proof of delivery to the parties at the following addresses (all such notices shall be effective upon receipt): If to Buyers: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: R. Jack DeCrane Fax Number: (310) 536-0257 with a copy to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Fax Number: (216) 668-2518 and a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephan A. Silverman, Esq. Fax Number: (310) 576-4844 If to Seller: John R. Allard 96 Riverview Park Manchester, NH 03102 with a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton 900 Elm Street Manchester, NH 03105-0326 Fax No. (603) 625-5650 Any of the parties hereto may, from time to time, change its address for receiving notices by giving written notice thereof in the manner outlined above. -4- 10. GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 11. HEADINGS. The paragraph headings contained in this Covenant are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 12. ASSIGNMENT. This Covenant may be assigned to any successor of Buyers; provided, however, Buyers shall remain primarily liable for the payments in Section 1.2. 13. COUNTERPARTS. This Covenant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. "Buyers" DeCrane Aircraft Holdings, Inc. /s/ R. Jack DeCrane, -------------------------------- By: R. Jack DeCrane Chief Executive Officer ADS Acquisition, Inc. /s/ R. Jack DeCrane, -------------------------------- By: R. Jack DeCrane Chief Executive Officer /s/ John R. Allard ------------------------------- Seller -5- EX-10.6 8 EXHIBIT 10.6 10.6 RESTRICTIVE COVENANT AGREEMENT AMONG REGISTRANT, ADS ACQUISITION, INC. AND THE ALLARD CHILDREN'S TRUST F/B/O MICHAEL E. ALLARD RESTRICTIVE COVENANT AGREEMENT This Restrictive Covenant Agreement ("Covenant") is among DeCrane Aircraft Holdings, Inc. ("Buyer"), ADS Acquisition, Inc. ("Acquisition", collectively with Buyer "Buyers") and The Allard Children's Trust f/b/o Michael E. Allard ("Seller"); A. Seller acknowledges that the consideration received from Buyers by Seller for these Covenants is adequate. B. Seller has owned and controlled ADS and has knowledge of the business, prospects, customers, needs of the customers, product specifications, key employees, future development of the business of ADS, each of which (if not otherwise known to the public or other persons) Seller acknowledges that ADS has advised Seller is either a trade secret ("Trade Secret") or confidential information ("Confidential Information") of ADS; and that to the extent that such Trade Secret or Confidential Information is a secret or is confidential, it is owned by and belongs to ADS. C. If Seller were to compete with the business of ADS, Seller's competition is likely cause material harm to ADS and diminish the value of the assets of ADS being sold by Seller to Buyers pursuant to the Agreement. D. The Business of ADS is worldwide; ADS's sales occur throughout the United States and in many foreign countries. If this Covenant were limited to the Commonwealth of Pennsylvania, its scope would not be sufficient to protect the interest of ADS. Based on the foregoing facts, Seller and Buyers agree as follows: 1. TERM OF THIS COVENANT AND CONSIDERATION. 1.1. As used in this Covenant, the "Term of this Covenant" shall mean a period commencing upon the Closing of the Agreement and expiring on September 17, 2000 Notwithstanding the foregoing, in the event that prior to the expiration hereof (i) ADS ceases business operations and there is no successor in interest to ADS's business (and ADS or the corporate entity of which it is a part is not a Debtor operating a business pursuant to any bankruptcy law), this Covenant shall terminate concurrent with such a cessation of business operations of ADS (ii) or within 10 days after notice from Seller to Buyers, any payment required pursuant to Section 1.2 is not made the restriction set forth in Section 2 shall terminate (Buyers shall nonetheless be liable for the payments pursuant to Section 1.2). 1.2 Buyers will pay to Sellers the aggregate sum of $636,363.64 which Seller is entitled to receive which amount shall be paid in 36 equal monthly installments commencing on the Closing Date. In the event that Buyers fail to make any payment pursuant to this Section 1.2 and such failure continues for a more than 10 days following notice from Seller to Buyers of such failure and demanding payment, Seller shall have the right to accelerate the full amount which is owing and unpaid pursuant to this Section 1.2 by giving notice to Buyers. Notwithstanding the foregoing sentence, Seller acknowledges that pursuant to an agreement with a senior lender, Buyers are prevented from making any payment pursuant to this Covenant at any time during which Buyers are in payment default to such senior lender. 2. COVENANT NOT TO COMPETE. For the Term of this Covenant, Seller shall not directly or indirectly engage in the design, engineering, manufacture or sale of dichroic liquid crystal displays ("LCDs") or dichroic LCD modules, or active matrix displays or otherwise engage in any business which competes with the business of ADS. "Directly or indirectly" means that Seller will not participate as an officer, director, shareholder, partner, member or consultant. The business of ADS is the design, engineering, manufacture and sale of dichroic LCDs, dichroic LCD modules and components incidental thereto to the Aircraft Industry. The "Aircraft Industry" means the manufacture, repair or assembly of airframes or component parts for commercial and military aircraft and aerospace applications. Notwithstanding the provisions of this Section 2, nothing shall prevent Seller from making a passive investment in up to 5% of the securities of any company whose common stock is traded on any national securities exchange or on NASDAQ. 3. COVENANT AGAINST HIRING. Seller understands that it is essential to the successful operation of the business to be acquired hereunder that Buyer retain substantially unimpaired ADS's operating organization. Seller agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of Allard not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, Seller shall not, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at any time during the 12 months preceding the Closing Date an employee, partner, representative, or manager of ADS. Provided, however, if the Buyer rand Robert G. Martin sign a three (3) year employment agreement and thereafter Buyer terminates Robert G. Martin other than "for cause" and does not compensate him for the -2- three (3) year period from the Closing, then Allard and the Principal Shareholders shall have the right, after such termination, to employ Robert G. Martin. 4. COVENANT NOT TO USE TRADE SECRETS. Seller agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than Buyer or those designated in writing by Buyer) in any manner, directly or indirectly any information or data relevant to the business of ADS, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than Buyer or those designated in writing by Buyer) to use, in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4. 5. RECITALS. The recitals are a part of this Covenant and shall be used in construing and interpreting it. 6. IRREPARABLE INJURY. Seller acknowledges that (i) the violation by Seller of any of the provisions of Sections 2, 3 and of this Covenant will result in irreparable injury to Buyers and that Buyers, shall be entitled to (i) the issuance of a temporary restraining order, (ii) a preliminary injunction and (iii) a permanent injunction to prohibit either the continuation or another breach of Sections 2, 3 or 4 of this Covenant. 7. MONETARY DAMAGES. Notwithstanding any provision of this Covenant, Buyers may seek and obtain monetary damages according to proof for any breach of this Covenant by Seller. 8. JURISDICTION. Seller and Buyers hereby consent to the jurisdiction and venue of the state and federal courts in the Commonwealth of Pennsylvania. -3- 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and, except as otherwise specifically provided in this Covenant, shall be given by commercial courier service providing proof of delivery to the parties at the following addresses (all such notices shall be effective upon receipt): If to Buyers: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: R. Jack DeCrane Fax Number: (310) 536-0257 with a copy to; DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Fax Number: (216) 668-2518 and a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman, Esq. Fax Number: (310) 576-4844 If to Seller: Michael E. Allard 96 Riverview Park Manchester, NH 03102 with a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton 900 Elm Street Manchester, NH 03105-0326 Fax No. (603) 625-5650 Any of the parties hereto may, from time to time, change its address for receiving notices by giving written notice thereof in the manner outlined above. -4- 10. GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 11. HEADINGS. The paragraph headings contained in this Covenant are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 12. ASSIGNMENT. This Covenant may be assigned to any successor of Buyers; provided, however, Buyers shall remain primarily liable for the payments in Section 1.2. 13. COUNTERPARTS. This Covenant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. "Buyers" DeCrane Aircraft Holdings, Inc. /s/ R. Jack DeCrane - -------------------------------- By: R. Jack DeCrane, Chief Executive Officer ADS Acquisition, Inc. /s/ R. Jack DeCrane - -------------------------------- By: R. Jack DeCrane, Chief Executive Officer /s/ Michael E. Allard - ------------------------------- Seller -5- EX-10.7 9 EXHIBIT 10.7 10.7 RESTRICTIVE COVENANT AGREEMENT AMONG REGISTRANT, ADS ACQUISITION, INC. AND YOUNES NAZARIAN RESTRICTIVE COVENANT AGREEMENT This Restrictive Covenant Agreement ("Covenant") is among DeCrane Aircraft Holdings, Inc. ("Buyer"), ADS Acquisition, Inc. ("Acquisition", collectively with Buyer "Buyers") and Younes Nazarian ("Seller"); A. Seller acknowledges that the consideration received from Buyers by Seller for these Covenants is adequate. B. Seller has owned and controlled ADS and has knowledge of the business, prospects, customers, needs of the customers, product specifications, key employees, future development of the business of ADS, each of which (if not otherwise known to the public or other persons) Seller acknowledges that ADS has advised Seller is either a trade secret ("Trade Secret") or confidential information ("Confidential Information") of ADS; and that to the extent that such Trade Secret or Confidential Information is a secret or is confidential, it is owned by and belongs to ADS. C. If Seller were to compete with the business of ADS, Seller's competition is likely cause material harm to ADS and diminish the value of the assets of ADS being sold by Seller to Buyers pursuant to the Agreement. D. The Business of ADS is worldwide; ADS's sales occur throughout the United States and in many foreign countries. If this Covenant were limited to the Commonwealth of Pennsylvania, its scope would not be sufficient to protect the interest of ADS. Based on the foregoing facts, Seller and Buyers agree as follows: 1. TERM OF COVENANT AND CONSIDERATION. 1.1. As used in this Covenant, the "Term of this Covenant" shall mean a period commencing upon the Closing of the Agreement and expiring on September 17, 2000. Notwithstanding the foregoing, in the event that prior to the expiration hereof (i) ADS ceases business operations and there is no successor in interest to ADS's business (and ADS or the corporate entity of which it is a part is not a Debtor operating a business pursuant to any bankruptcy law), this Covenant shall terminate concurrent with such a cessation of business operations of ADS (ii) or within 10 days after notice from Seller to Buyers, any payment required pursuant to Section 1.2 is not made the restriction set forth in Section 2 shall terminate (Buyers shall nonetheless be liable for the payments pursuant to Section, 1.2). 1.2. Buyers will pay to Sellers the aggregate sum of $181,818.18 which Seller is entitled to receive which amount shall be paid in 36 equal monthly installments commencing on the Closing Date. In the event that Buyers fail to make any payment pursuant to this Section 1.2 and such failure continues for a more than 10 days following notice from Seller to Buyers of such failure and demanding payment, Seller shall have the right to accelerate the full amount which is owing and unpaid pursuant to this Section 1.2 by giving notice to Buyers. Notwithstanding the foregoing sentence, Seller acknowledges that pursuant to an agreement with a senior lender, Buyers are prevented from making any payment pursuant to this Covenant at any time during which Buyers are in payment default to such senior lender. 2. COVENANT NOT TO COMPETE. For the Term of this Covenant, Seller shall not directly or indirectly engage in the design, engineering, manufacture or sale of dichroic liquid crystal displays ("LCDs") or dichroic LCD modules, or active matrix displays or otherwise engage in any business which competes with the business of ADS. "Directly or indirectly" means that Seller will not participate as an officer, director, shareholder, partner, member or consultant. The business of ADS is the design, engineering, manufacture and sale of dichroic LCDs, dichroic LCD modules and components incidental thereto to the Aircraft Industry. The "Aircraft Industry" means the manufacture, repair or assembly of airframes or component parts for commercial and military aircraft and aerospace applications. Notwithstanding the provisions of this Section 2, nothing shall prevent Seller from making a passive investment in up to 5% of the securities of any company whose common stock is traded on any national securities exchange or on NASDAQ. 3. COVENANT AGAINST HIRING. Seller understands that it is essential to the successful operation of the business to be acquired hereunder that Buyer retain substantially unimpaired ADS's operating organization. Seller agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of Allard not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, Seller shall not, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at any time using the 12 months preceding the Closing Date an employee, partner, representative, or manager of ADS. Provided, however, if the Buyer and Robert G. Martin sign a three (3) year employment agreement and thereafter Buyer terminates Robert G. Martin other than "for cause" and does not compensate him for the - 2 - three (3) year period from the Closing, then Allard and the Principal Shareholders shall have the right, after such termination, to employ Robert G. Martin. 4. COVENANT NOT TO USE TRADE SECRETS. Seller agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than Buyer or those designated in writing by Buyer) in any manner, directly or indirectly, any information or data relevant to the business of ADS, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than Buyer or those designated in writing by Buyer) to use in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4. 5. RECITALS. The recitals are a part of this Covenant and shall be used in construing and interpreting it. 6. IRREPARABLE INJURY. Seller acknowledges that (i) the violation by Seller of any of the provisions of Sections 2, 3 and of this Covenant will result in irreparable injury to Buyers and that Buyers, shall be entitled to (i) the issuance of a temporary restraining order, (ii) a preliminary injunction and (iii) a permanent injunction to prohibit either the continuation or another breach of Sections 2, 3 or 4 of this Covenant. 7. MONETARY DAMAGES. Notwithstanding any provision of this Covenant, Buyers may seek and obtain monetary damages according to proof for any breach of this Covenant by Seller. 8. JURISDICTION. Seller and Buyers hereby consent to the jurisdiction and venue of the state and federal courts in the Commonwealth of Pennsylvania. - 3 - 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and, except as otherwise specifically provided in this Covenant, shall be given by commercial courier service providing proof of delivery to the parties at the following addresses (all such notices shall be effective upon receipt): If to Buyers: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: R. Jack DeCrane Fax Number: (310) 536-0257 with a copy to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Fax Number: (216) 668-2518 and a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman, Esq. Fax Number: (310) 576-4844 If to seller: Younes Nazarian 9300 Wilshire Blvd. #600 Beverly Hills, CA 90212 With a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton 900 Elm Street Manchester, NH 03105-0326 Fax No. (603) 625-5650 Any of the parties hereto may, from time to time, change its address for receiving notices by giving written notice thereof in the manner outlined above. - 4 - 10. GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 11. HEADINGS. The paragraph headings contained in this Covenant are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 12. ASSIGNMENT. This Covenant may be assigned to any successor of Buyers; provided, however, Buyers shall remain primarily liable for the payments in Section 1.2. 13. COUNTERPARTS. This Covenant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. "Buyers" DeCrane Aircraft Holdings, Inc. /s/ R. Jack DeCrane - ---------------------------------------- By: R. Jack DeCrane, Chief Executive Officer ADS Acquisition, Inc. /s/ R. Jack DeCrane - ---------------------------------------- By: R. Jack DeCrane, Chief Executive Officer /s/ illegible - ---------------------------------------- Seller - 5 - EX-10.8 10 EXHIBIT 10.8 10.8 RESTRICTIVE COVENANT AGREEMENT AMONG REGISTRANT, ADS ACQUISITION, INC. AND DAVID AND ANGELA NAZARIAN, TRUSTEES OF THE NAZARIAN FAMILY TRUST RESTRICTIVE COVENANT AGREEMENT This Restrictive Covenant Agreement ("Covenant") is among DeCrane Aircraft Holdings, Inc. ("Buyer"), ADS Acquisition, Inc. ("Acquisition", collectively with Buyer "Buyers") and David and Angela Nazarian, Trustees of The Nazarian Family Trust ("Seller"); A. Seller acknowledges that the consideration received from Buyers by Seller for these Covenants is adequate. B. Seller has owned and controlled ADS and has knowledge of the business, prospects, customers, needs of the customers, product specifications, key employees, future development of the business of ADS, each of which (if not otherwise known to the public or other persons) Seller acknowledges that ADS has advised Seller is either a trade secret ("Trade Secret") or confidential information ("Confidential Information") of ADS; and that to the extent that such Trade Secret or Confidential Information is a secret or is confidential, it is owned by and belongs to ADS. C. If Seller were to compete with the business of ADS, Seller's competition is likely cause material harm to ADS and diminish the value of the assets of ADS being sold by Seller to Buyers pursuant to the Agreement. D. The Business of ADS is worldwide; ADS's sales occur throughout the United States and in many foreign countries. If this Covenant were limited to the Commonwealth of Pennsylvania, its scope would not be sufficient to protect the interest of ADS. Based on the foregoing facts, Seller and Buyers agree as follows: 1. TERM OF THIS COVENANT AND CONSIDERATION. 1.1. As used, in this Covenant, the "Term of this Covenant" shall mean a period commencing upon the Closing of the Agreement and expiring on September 17, 2000. Notwithstanding the foregoing, in the event that prior to the expiration hereof (i) ADS ceases business operations and there is no successor in interest to ADS's business (and ADS or the corporate entity of which it is a part is not a Debtor operating a business pursuant to any bankruptcy law), this Covenant shall terminate concurrent with such a cessation of business operations of ADS (ii) or within 10 days after notice from Seller to Buyers, any payment required pursuant to Section 1.2 is not made the restriction set forth in Section 2 shall terminate (Buyers shall nonetheless be liable for the payments pursuant to Section 1.2). 1.2. Buyers will pay to Sellers the aggregate sum of $636,363.64 which Seller is entitled to receive which amount shall be paid in 36 equal monthly installments commencing on the Closing Date. In the event that Buyers fail to make any payment pursuant to this Section 1.2 and such failure continues for a more than 10 days following notice from Seller to Buyers of such failure and demanding payment, Seller shall have the right to accelerate the full amount which is owing and unpaid pursuant to this Section 1.2 by giving notice to Buyers. Notwithstanding the foregoing sentence, Seller acknowledges that pursuant to an agreement with a senior lender, Buyers are prevented from making any payment pursuant to this Covenant at any time during which Buyers are in payment default to such senior lender. 2. COVENANT NOT TO COMPETE. For the Term of this Covenant, Seller shall not directly or indirectlY engage in the design, engineering, manufacture or sale of dichroic liquid crystal displays ("LCDs") or dichroic LCD modules, or active matrix displays or otherwise engage in any business which competes with the business of ADS. "Directly or indirectly" means that Seller will not participate as an officer, director, shareholder, partner, member or consultant. The business of ADS is the design, engineering, manufacture and sale of dichroic LCDs, dichroic LCD modules and components incidental thereto to the Aircraft Industry. The "Aircraft Industry" means the manufacture, repair or assembly of airframes or component parts for commercial and military aircraft and aerospace applications. Notwithstanding the provisions of this Section 2, nothing shall prevent Seller from making a passive investment in up to 5% of the securities of any company whose common stock is traded on any national securities exchange or on NASDAQ. 3. COVENANT AGAINST HIRING. Seller understands that it is essential to the successful operation of the business to be acquired hereunder that Buyer retain substantially unimpaired ADS's operating organization. Seller agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of Allard not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, Seller shall not, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ {whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at any time using the 12 months preceding the Closing Date an employee, partner, representative, or manager of ADS. Provided, however, if the Buyer and Robert G. Martin sign a three (3) year employment agreement and thereafter Buyer terminates Robert G. Martin other than "for cause" and does not compensate him for the -2- three (3) year period from the Closing, then Allard and the Principal Shareholders shall have the right, after such termination, to employ Robert G. Martin. 4. COVENANT NOT TO USE TRADE SECRETS. Seller agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than Buyer or those designated in writing by Buyer) in any manner, directly or indirectly, any information or data relevant to the business of ADS, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person; association, firm corporation or other entity (other than Buyer or those designated in writing by Buyer) to use, in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4. 5. RECITALS. The recitals are a part of this Covenant and shall be used in construing and interpreting it. 6. IRREPARABLE INJURY. Seller acknowledges that (i) the violation by Seller of any of the provisions of Sections 2, 3 and of this Covenant will result in irreparable injury to Buyers and that Buyers, shall be entitled to (i) the issuance of a temporary restraining order, (ii) a preliminary injunction and (iii) a permanent injunction to prohibit either the continuation or another breach of Sections 2, 3 or 4 of this Covenant. 7. MONETARY DAMAGES. Notwithstanding any provision of this Covenant, Buyers may seek and obtain monetary damages according to proof for any breach of this Covenant by Seller. 8. JURISDICTION. Seller and Buyers hereby consent to the jurisdiction and venue of the state and federal courts in the Commonwealth of Pennsylvania. -3- 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and, except as otherwise specifically provided in this Covenant, shall be given by commercial courier service providing proof of delivery to the parties at the following addresses (all such notices shall be effective upon receipt): If to Buyers: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: R. Jack DeCrane Fax Number: (310) 536-0257 with a copy to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Fax Number: (216) 668-2518 and a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman, Esq. Fax Number: (310) 576-4844 If to seller: David Nazarian 9300 Wilshire Blvd. #600 Beverly Hills, CA 90212 With a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton 900 Elm Street Manchester, NH 03105-0326 Fax No. (603) 625-5650 Any of the parties hereto may, from time to time, change its address for receiving notices by giving written notice thereof in the manner outlined above. -4- 10. GOVERNING LAW. This Agreement Shall in all respects be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 11. HEADINGS. The paragraph headings contained in this Covenant are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 12. ASSIGNMENT. This Covenant may be assigned to any successor of Buyers; provided, however, Buyers shall remain primarily liable for the payments in Section 1.2. 13. COUNTERPARTS. This Covenant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. "Buyers" DeCrane Aircraft Holdings, Inc. /s/ R. Jack DeCrane - -------------------------------- By: R. Jack DeCrane, Chief Executive Officer ADS Acquisition, Inc. /s/ R. Jack DeCrane - -------------------------------- By: R. Jack DeCrane, Chief Executive Officer /s/ D. Nazarian - -------------------------------- Seller -5- EX-10.9 11 EXHIBIT 10.9 10.9 RESTRICTIVE COVENANT AGREEMENT AMONG REGISTRANT, ADS ACQUISITION, INC. AND GERALD R. ALLARD, TRUSTEE OF THE GERALD R. ALLARD REVOCABLE TRUST OF 1994 RESTRICTIVE COVENANT AGREEMENT This Restrictive Covenant Agreement ("Covenant") is among DeCrane Aircraft Holdings, Inc. ("Buyer"), ADS Acquisition, Inc. ("Acquisition", collectively with Buyer "Buyers") and Gerald R. Allard, Trustee of The Gerald R. Allard Revocable Trust of 1994 ("Seller"); A. Seller acknowledges that the consideration received from Buyers by Seller for these Covenants is adequate. B. Seller has owned and controlled ADS and has knowledge of the business, prospects, customers, needs of the customers, product specifications, key employees, future development of the business of ADS, each of which (if not otherwise known to the public or other persons) Seller acknowledges that ADS has advised Seller is either a trade secret ("Trade Secret") or confidential information ("Confidential Information") of ADS; and that to the extent that such Trade Secret or Confidential Information is a secret or is confidential, it is owned by and belongs to ADS. C. If Seller were to compete with the business of ADS, Seller's competition is likely cause material harm to ADS and diminish the value of the assets of ADS being sold by Seller to Buyers pursuant to the Agreement. D. The Business of ADS is worldwide; ADS's sales occur throughout the United States and in many foreign countries. If this Covenant were limited to the Commonwealth of Pennsylvania, its scope would not be sufficient to protect the interest of ADS. Based on the foregoing facts, Seller and Buyers agree as follows: 1. TERM OF THIS COVENANT AND CONSIDERATION. 1.1. As used, in this Covenant, the "Term" of this Covenant shall mean a period commencing upon the Closing of the Agreement and expiring on September 17, 2000. Notwithstanding the foregoing, in the event that prior to the expiration hereof (i) ADS ceases business operations and there is no successor in interest to ADS's business (and ADS or the corporate entity of which it is a part is not a Debtor operating a business pursuant to any bankruptcy law), this Covenant shall terminate concurrent with such a cessation of business operations of ADS (ii) or within 10 days after notice from Seller to Buyers, any payment required pursuant to Section 1.2 is not made the restriction set forth in Section 2 shall terminate (Buyers shall nonetheless be liable for the payments pursuant to Section 1.2). 1.2. Buyers will pay to Sellers the aggregate sum of $1 which Seller is entitled to receive which amount shall be paid in 36 equal monthly installments commencing on the Closing Date. In the event that Buyers fail to make any payment pursuant to this Section 1.2 and such failure continues for a more than 10 days following notice from Seller to Buyers of such failure and demanding payment, Seller shall have the right to accelerate the full amount which is owing and unpaid pursuant to this Section 1.2 by giving notice to Buyers. Notwithstanding the foregoing sentence, Seller acknowledges that pursuant to an agreement with a senior lender, Buyers are prevented from making any payment pursuant to this Covenant at any time during which Buyers are in payment default to such senior lender. 2. COVENANT NOT TO COMPETE. For the Term of this Covenant, Seller shall not directly or indirectly engage in the design, engineering, manufacture or sale of dichroic liquid crystal displays ("LCDs") or dichroic LCD modules, or active matrix displays or otherwise engage in any business which competes with the business of ADS. "Directly or indirectly" means that Seller will not participate as an officer, director, shareholder, partner, member or consultant. The business of ADS is the design, engineering, manufacture and sale of dichroic LCDs, dichroic LCD modules and components incidental thereto to the Aircraft Industry. The "Aircraft Industry" means the manufacture, repair or assembly of airframes or component parts for commercial and military aircraft and aerospace applications. Notwithstanding the provisions of this Section 2, nothing shall prevent Seller from making a passive investment in up to 5% of the securities of any company whose common stock is traded on any national securities exchange or on NASDAQ. 3. COVENANT AGAINST HIRING. Seller understands that it is essential to the successful operation of the business to be acquired hereunder that Buyer retain substantially unimpaired ADS's operating organization. Seller agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of Allard not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, Seller shall not, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at any time using the 12 months preceding the Closing Date an employee, partner, representative, or manager of ADS. Provided, however, if the Buyer and Robert G. Martin sign a three (3) year employment agreement and thereafter Buyer terminates Robert G. Martin other than "for cause" and does not compensate him for the - 2 - three (3) year period from the Closing, then Allard and the Principal Shareholders shall have the right, after such termination, to employ Robert G. Martin. 4. COVENANT NOT TO USE TRADE SECRETS. Seller agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than Buyer or those designated in writing by Buyer) in any manner, directly or indirectly, any information or data relevant to the business of ADS, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than Buyer or those designated in writing by Buyer) to use in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4. 5. RECITALS. The recitals are a part of this Covenant and shall be used in construing and interpreting it. 6. IRREPARABLE INJURY. Seller acknowledges that (i) the violation by Seller of any of the provisions of Sections 2, 3 and of this Covenant will result in irreparable injury to Buyers and that Buyers, shall be entitled to (i) the issuance of a temporary restraining order, (ii) a preliminary injunction and (iii) a permanent injunction to prohibit either the continuation or another breach of Sections 2, 3 or 4 of this Covenant. 7. MONETARY DAMAGES. Notwithstanding any provision of this Covenant, Buyers may seek and obtain monetary damages according to proof for any breach of this Covenant by Seller. 8. JURISDICTION. Seller and Buyers hereby consent to the jurisdiction and venue of the state and federal courts in the Commonwealth of Pennsylvania. - 3 - 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and, except as otherwise specifically provided in this Covenant, shall be given by commercial courier service providing proof of delivery to the parties at the following addresses (all such notices shall be effective upon receipt): If to Buyers: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue EL Segundo, California 90245 Attention: R. Jack DeCrane Fax Number: (310) 536-0257 with a copy to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Fax Number: (216) 668-2518 and a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman, Esq. Fax Number: (310) 576-4844 If to seller: Gerald R. Allard 520 S. Collier Blvd. Apt. 301 Marco Island. FL 34145 With a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton 900 Elm Street Manchester, NH 03105-0326 Fax No. (603) 625-5650 Any of the parties hereto may, from time to time, change its address for receiving notices by giving written notice thereof in the manner outlined above. - 4 - 10. GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 11. HEADINGS. The paragraph headings contained in this Covenant are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 12. ASSIGNMENT. This Covenant may be assigned to any successor of Buyers; provided, however, Buyers shall remain primarily liable for the payments in Section 1.2. 13. COUNTERPARTS. This Covenant may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. "Buyers" DeCrane Aircraft Holdings, Inc. /s/ R. Jack DeCrane - ------------------------------------ By: R. Jack DeCrane, Chief Executive Officer ADS Acquisition, Inc. /s/ R. Jack DeCrane - ------------------------------------ By: R. Jack DeCrane, Chief Executive Officer /s/ Gerald R. Allard - ------------------------------------ Seller - 5 - EX-10.12 12 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 13 EXHIBIT 10.13 EXHIBIT 10.13 Amended and Restated Credit Agreement, dated September 18, 1996, among Registrant, ADS Acquisition, Inc., Tri-Star Holdings, Inc., Tri-Star Electronics International, Inc., Tri-Star Technologies, inc., Tri-Star Technologies, Tri-Star Electronics Europe S.A., Mezzovico, Cory Holdings, Inc., Cory Components, Inc., Hollinsead International, Inc., Hollingsead International Limited, The Provident Bank, and Internationale Nederlanden (U.S.) Capital Corporation. [EXECUTION COPY] ****************************************************************************** DeCRANE AIRCRAFT HOLDINGS, INC. and SUBSIDIARY GUARANTORS ______________________________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of September 18, 1996 _______________________________ INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Agent ****************************************************************************** TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only. Page ---- Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . 1 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . 1 1.02 Accounting Terms and Determinations . . . . . . . . . . . . 29 1.03 Classes and Types of Loans . . . . . . . . . . . . . . . . . 30 Section 2. Commitments, Loans, Notes and Prepayments . . . . . . . . . 30 2.01 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.02 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.03 Letters of Credit . . . . . . . . . . . . . . . . . . . . . 33 2.04 Changes of Commitments . . . . . . . . . . . . . . . . . . . 38 2.05 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . 38 2.06 Lending Offices . . . . . . . . . . . . . . . . . . . . . . 39 2.07 Several Obligations; Remedies Independent . . . . . . . . . 39 2.08 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.09 Optional Prepayments and Conversions or Continuations of Loans . . . . . . . . . . . . . . . . . . . . . . . . 40 2.10 Mandatory Prepayments and Reductions of Commitments . . . . 40 2.11 Prepayment Fees. . . . . . . . . . . . . . . . . . . . . . . 43 Section 3. Payments of Principal and Interest . . . . . . . . . . . . 43 3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . 43 3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . . . 45 4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . 46 4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . 47 4.04 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . 47 4.05 Certain Notices . . . . . . . . . . . . . . . . . . . . . 47 4.06 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . 48 4.07 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . 49 Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . . . 51 5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . 51 5.02 Limitation on Types of Loans . . . . . . . . . . . . . . . . 54 5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . 54 5.04 Treatment of Affected Loans . . . . . . . . . . . . . . . . 55 5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 55 5.06 Additional Costs in Respect of Letters of Credit . . . . . . 56 5.07 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 (i) Page ---- Section 6. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 58 6.01 The Guarantee . . . . . . . . . . . . . . . . . . . . . . . 58 6.02 Obligations Unconditional . . . . . . . . . . . . . . . . . 58 6.03 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 59 6.04 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 60 6.05 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 60 6.06 Instrument for the Payment of Money . . . . . . . . . . . . 60 6.07 Continuing Guarantee . . . . . . . . . . . . . . . . . . . . 60 6.08 Rights of Contribution . . . . . . . . . . . . . . . . . . . 61 6.09 General Limitation on Guarantee Obligations . . . . . . . . 62 6.10 Limitation on Kerner's Liability . . . . . . . . . . . . . . 62 6.11 Limitation on Gutermann's Liability . . . . . . . . . . . . 62 Section 7. Conditions Precedent . . . . . . . . . . . . . . . . . . . . 62 7.01 Effectiveness of Amendment and Restatement . . . . . . . . . 62 7.02 Initial and Subsequent Extensions of Credit . . . . . . . . 66 Section 8. Representations and Warranties . . . . . . . . . . . . . . . 66 8.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . 66 8.02 Financial Condition . . . . . . . . . . . . . . . . . . . . 67 8.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.05 Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.07 Use of Credit . . . . . . . . . . . . . . . . . . . . . . . 68 8.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.10 Investment Company Act . . . . . . . . . . . . . . . . . . . 69 8.11 Public Utility Holding Company Act . . . . . . . . . . . . . 69 8.12 Material Agreements and Liens . . . . . . . . . . . . . . . 69 8.13 Environmental Matters . . . . . . . . . . . . . . . . . . . 70 8.14 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 72 8.15 Subsidiaries, Etc. . . . . . . . . . . . . . . . . . . . . . 72 8.16 Title to Assets . . . . . . . . . . . . . . . . . . . . . . 73 8.17 True and Complete Disclosure . . . . . . . . . . . . . . . . 73 8.18 Legal Form . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 9. Covenants of the Company . . . . . . . . . . . . . . . . . . 74 9.01 Financial Statements, Etc. . . . . . . . . . . . . . . . . . 74 9.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 79 9.03 Existence, Etc . . . . . . . . . . . . . . . . . . . . . . . 79 9.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 80 9.05 Prohibition of Fundamental Changes . . . . . . . . . . . . . 83 9.06 Limitation on Liens . . . . . . . . . . . . . . . . . . . . 83 9.07 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 85 9.08 Investments . . . . . . . . . . . . . . . . . . . . . . . . 85 9.09 Dividend Payments . . . . . . . . . . . . . . . . . . . . . 86 9.10 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . 86 9.11 EBITDA Ratio . . . . . . . . . . . . . . . . . . . . . . . . 87 (ii) Page ---- 9.12 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 87 9.13 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . 87 9.14 Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . 88 9.15 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 88 9.16 Interest Coverage Ratio; Selling, General and Administrative Expense Ratio . . . . . . . . . . . . . . . 89 9.17 Accounts Payable Ratio . . . . . . . . . . . . . . . . . . . 89 9.18 Interest Rate and Commodity Price Protection Agreements . . 90 9.19 Subordinated Indebtedness; Allard Non-Compete . . . . . . . 90 9.20 Lines of Business . . . . . . . . . . . . . . . . . . . . . 90 9.21 Transactions with Affiliates . . . . . . . . . . . . . . . . 90 9.22 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 91 9.23 Certain Obligations Respecting Subsidiaries. . . . . . . . . 91 9.24 Modifications of Certain Documents . . . . . . . . . . . . . 92 9.25 Vendor Payables . . . . . . . . . . . . . . . . . . . . . . 92 9.26 Governmental Approvals . . . . . . . . . . . . . . . . . . . 92 9.27 Swiss Receivables . . . . . . . . . . . . . . . . . . . . . 92 9.28 Intercompany Note . . . . . . . . . . . . . . . . . . . . . 92 9.29 ADS Financial Statements . . . . . . . . . . . . . . . . . . 93 9.30 Deal Costs . . . . . . . . . . . . . . . . . . . . . . . . . 93 Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . 93 Section 11. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . 98 11.01 Appointment, Powers and Immunities . . . . . . . . . . . . . 98 11.02 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . 99 11.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 99 11.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . 99 11.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . 100 11.06 Non-Reliance on Agent and Other Lenders. . . . . . . . . . . 100 11.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . 101 11.08 Resignation or Removal of Agent. . . . . . . . . . . . . . . 101 11.09 Agency Fee; Cash Management Fee. . . . . . . . . . . . . . . 101 11.10 Consents under Other Basic Documents . . . . . . . . . . . . 102 11.11 Collateral Sub-Agents. . . . . . . . . . . . . . . . . . . . 102 11.12 Resignation of Cash Collateral Agent; Etc. . . . . . . . . . 103 Section 12. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 103 12.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 103 12.03 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . 104 12.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . 105 12.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . 106 12.06 Assignments and Participations . . . . . . . . . . . . . . . 106 12.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 108 12.08 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 108 12.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 108 12.10 Governing Law; Submission to Jurisdiction . . . . . . . . . 108 (iii) Page ---- 12.11 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . 109 12.12 Treatment of Certain Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . 109 12.13 Judgment Currency . . . . . . . . . . . . . . . . . . . . . 110 SCHEDULE I - Litigation SCHEDULE II - Material Agreements and Liens SCHEDULE III - Environmental Matters SCHEDULE IV - Subsidiaries and Investments SCHEDULE V - Capitalization EXHIBIT A-1 - Form of Revolving Credit Note EXHIBIT A-2 - Form of Term Loan Note EXHIBIT B - Form of Borrowing Base Certificate EXHIBIT C-1 - Form of Security Agreement EXHIBIT C-2 - Form of Security Agreement Amendment EXHIBIT D - Form of Cash Management Agreement EXHIBIT E - Form of Opinion of Counsel to the Obligors EXHIBIT F - Form of Opinion of Special Swiss Counsel to the Obligors EXHIBIT G - Form of Opinion of Special U.K. Counsel to the Obligors EXHIBIT H-1 - Form of Annual Budget of the Company and its Subsidiaries EXHIBIT H-2 - Form of Monthly Report of the Company and its Subsidiaries EXHIBIT H-3 - Form of Compliance Certificate EXHIBIT I - Form of Confidentiality Agreement (iv) AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 18, 1996, between: DeCRANE AIRCRAFT HOLDINGS, INC., a corporation duly organized and validly existing under the laws of the State of Ohio (the "COMPANY"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (individually, a "SUBSIDIARY GUARANTOR" and, collectively, the "SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto or that, pursuant to Section 12.06(b) hereof, shall become a "Lender" hereunder (individually, a "LENDER" and, collectively, the "LENDERS"); THE PROVIDENT BANK, an Ohio banking corporation, as Cash Management Agent (in such capacity, together with its successors in such capacity, the "CASH MANAGEMENT ACCENT"); and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). The Company, the Subsidiary Guarantors, the Lenders, the Cash Management Agent and the Agent are parties to a Credit Agreement, dated as of November 2, 1994 (as amended heretofore, the "ORIGINAL CREDIT AGREEMENT"), and the parties to the Original Credit Agreement wish to amend and restate the terms of the Original Credit Agreement for the purpose of providing additional credit to the Company to finance certain capital expenditures and the operations of the Company and for other purposes. Accordingly, the Company, the Subsidiary Guarantors, the Lenders, the Cash Management Agent and the Agent agree that, subject to the terms and conditions of this Agreement, the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: Section 1. DEFINITIONS AND ACCOUNTING MATTERS. 1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and VICE VERSA): "ACCOUNTS PAYABLE" shall mean, as at any date, the sum for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP) of all amounts that should be classified as accounts payable on a balance sheet. "ACCOUNTS PAYABLE RATIO" shall mean, as at any date, the ratio of: (a) the product of (i) Accounts Payable on such date TIMES (ii) 360, TO (b) for any date occurring: (i) on or after December 31, 1996, Cost of Goods Sold for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date, and (ii) prior to December 31, 1996, the product of (x) Cost of Goods Sold for the period commencing on January 1, 1996 and ending on the last day of the fiscal quarter ending on, or most recently ended prior to, such date, times (y) the Applicable Annualization Factor. "ADS" shall mean the Aerospace Display Systems Division of Allard. "ADS PURCHASE" shall mean the purchase by the Company of substantially all of the assets of ADS pursuant to the ADS Purchase Agreement. "ADS PURCHASE AGREEMENT" shall mean the Asset Purchase and Sale Agreement, dated July 23, 1996, by and among Allard, ADS Acquisition, Inc., the Company and the other parties named therein. "ADS SUBSIDIARY" shall mean ADS Acquisition, Inc. "AFFILIATE" shall mean any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or any of its Subsidiaries, (b) none of the Wholly Owned Subsidiaries of the - 2 - Company shall be Affiliates and (c) neither the Agent nor any Lender shall be an Affiliate. "APPLICABLE ANNUALIZATION FACTOR" shall mean: (a) for the fiscal quarter ending on March 31, 1996, 4.0; (b) for the fiscal quarter ending on June 30, 1996, 2.0; and (c) for the fiscal quarter ending on September 30, 1996, 1.33. "ALLARD" shall mean Allard Industries, Inc. "ALLARD NON-COMPLETE DOCUMENTATION" shall mean the covenant not to compete referred to in Section 5.2.8 of the ADS Purchase Agreement. "APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Company as the office by which its Loans of such Type are to be made and maintained. "APPLICABLE MARGIN" shall mean: (a) with respect to Term Loans that are Base Rate Loans, 3-1/2% per annum; (b) with respect to Term Loans that are Eurodollar Loans, 5% per annum; (c) with respect to Revolving Credit Loans that are Base Rate Loans and with respect to Swingline Loans, 3-1/4% per annum; and (d) with respect to Revolving Credit Loans that are Eurodollar Loans, 4-1/2% per annum. "BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "BASE RATE" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day - 3 - plus 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "BASE RATE LOANS" shall mean Loans that bear interest at rates based upon the Base Rate. "BASIC DOCUMENTS" shall mean, collectively, this Agreement, the Notes, the Cash Management Agreement, the Letter of Credit Documents, the Intercompany Note, the Security Documents and any agreement evidencing any Interest Rate Protection Agreement entered into between any Obligor and any Lender. "BOEING" shall mean The Boeing Company, a corporation organized under the laws of the State of Delaware. "BORROWING BASE" shall mean, as at any date, the sum of (a) 85% of the aggregate amount of Eligible Receivables at said date (other than Eligible Foreign Receivables) PLUS (b) 65% of Eligible Foreign Receivables at said date PLUS (c) 50% of the Eligible Inventory (other than Eligible Foreign Inventory) at said date PLUS (d) 35% of Eligible Foreign Inventory at said date. The "VALUE" of Eligible Inventory shall be determined at the lower of cost or market in accordance with GAAP, except that cost shall be determined on a first-in-first-out basis. "BORROWING BASE CERTIFICATE" shall mean a certificate of the chief financial officer of the Company, substantially in the form of Exhibit B hereto and appropriately completed. "BUSINESS DAY "shall mean (a) any day on which commercial banks are not authorized or required to close in New York City and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. "CAPITAL EXPENDITURES" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. - 4 - "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CASH FLOW" shall mean, for any period, the sum, for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) EBITDA for such period MINUS (b) cash taxes based on or measured by income that are paid during such period (including penalties with respect thereto and interest thereon) MINUS (c) Capital Expenditures made during such period to the extent permitted by Section 9.15 hereof. "CASH MANAGEMENT AGREEMENT" shall mean a Lock Box Service Contract between the Company and Provident, substantially in the form of Exhibit D hereto, as the same shall be modified and supplemented and in effect from time to time. "CASUALTY EVENT" shall mean, with respect to any Property of any Person, any loss of or damage to, or any condemnation or other taking of, such Property for which such Person or any of its Subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation. "CLAIRCOM" shall mean AT&T Wireless Services. "CLASS" shall have the meaning assigned to such term in Section 1.03 hereof. "CLOSING DATE" shall mean the date, no later than September 23, 1996, on which the conditions precedent specified in Section 7 hereof shall have been satisfied and on which the initial extensions of credit hereunder are made. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL ACCOUNT" shall have the meaning assigned to such term in Section 4.1 of the Security Agreement. "COLLATERAL AUDITOR" shall mean Provident. "COMMITMENTS" shall mean the Revolving Credit Commitments, the Term Loan Commitments and the Swingline Commitment. - 5 - "COMMODITY PRICE PROTECTION AGREEMENT" shall mean, for any Person, an exchange-traded or over-the-counter commodity (including, without limitation, foreign exchange) forward, future, option, swap, swaption, cap, collar, floor or similar arrangement to which such Person is a party, providing for the transfer or mitigation of commodity (including foreign exchange) risks either generally or under specific contingencies. "CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion pursuant to Section 2.09 hereof of one Type of Loans --into another Type of Loans, which may be accompanied by the transfer by a Lender (at its sole discretion) of a Loan from one Applicable Lending Office to another. "CONVERTIBLE SUBORDINATED NOTES" shall mean, collectively, the Nassau Note and the Electra Note, as those terms are defined in the 1996 (September) Securities Purchase Agreement. "CONVERTIBLE SUBORDINATED NOTE DOCUMENTATION" shall mean all documents and agreements executed and delivered in connection with the original issuance of the Convertible Subordinated Notes, including the Convertible Subordinated Notes and the 1996 (September) Securities Purchase Agreement. "CORY" shall mean Cory Components, Inc., a corporation organized under the laws of the State of California. "CORY HOLDINGS" shall mean Cory Holdings, Inc., a corporation organized under the laws of the State of Ohio. "CORY PURCHASE AGREEMENT" shall mean the Stock purchase Agreement, dated January 1, 1995, between the Company, Cory and Gamberg. "CORY REPURCHASE" shall mean the purchase by the Company from Gamberg of 25% of the outstanding capital stock of Cory pursuant to Cory Purchase Agreement. "COST OF GOODS SOLD" shall mean, for any period, the sum for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP) of all costs, excluding depreciation and amortization, that should be classified as cost of goods sold on an income statement. - 6 - "COVERED TAXES" shall mean all present and future income, stamp, registration and other taxes and levies, imposts, deductions, charges, compulsory loans and withholdings whatsoever, and all interest, penalties and similar amounts with respect thereto, now or hereafter imposed, assessed, levied or collected by any authority of or in any jurisdiction (other than Switzerland or the United Kingdom) from or through which payments to or for the account of the Lenders hereunder are made as a result or consequence of such payments (excluding, however, income or franchise taxes imposed on a Lender by a jurisdiction as a result of such Lender being organized under the laws of such jurisdiction or of its Applicable Lending Office being located in such jurisdiction). "DEAL COSTS" shall mean all costs and expenses incurred by the Company in connection with the ADS Purchase, the 1996 (September) Securities Purchase Agreement, and the other transactions contemplated by this Agreement to occur on the Closing Date, including (without limitation) the following: (a) fees and expenses paid to the Lenders, the Lenders' counsel, the Agent and the Agent's counsel, (b) fees and expenses paid to Nassau and its counsel, (c) fees and expenses paid to Electra and its counsel, (d) fees and expenses paid to environmental, aerospace industry and other consultants and (e) all other fees, commissions and expenses relating to any of the foregoing (including, without limitation, investment banking, independent accountants, depository, brokerage, publicity, legal, arrangement and commitment fees, commissions and expenses). "DEBT SERVICE" shall mean, for any period, the sum, for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all payments of principal of Indebtedness (including, without limitation, the principal component of any payments in respect of Capital Lease Obligations) scheduled to be made during such period PLUS (b) all Interest Expense that is payable in cash for such period. "DEFAULT" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "DISPOSITION" shall mean any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Company or any of its Subsidiaries to any other Person excluding any sale, assignment, transfer or other disposition of any Property sold or disposed of in the ordinary course of business and on ordinary business terms. - 7 - "DIVIDEND PAYMENT" shall mean dividends (in cash, Property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company or of any warrants, options or other rights to acquire the same (or to make any payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market or equity value of the Company or any of its Subsidiaries), but excluding dividends payable solely in shares of common stock of the Company. "DOLLARS" and "$" shall mean lawful money of the United States of America. "EBITDA" shall mean, for any period, the sum of the following for the Obligors (determined without duplication in accordance with GAAP): (a) net income for such period, PLUS (b) the aggregate amount of depreciation, amortization (including, without limitation, amortization of intangibles), taxes based on or measured by income and Interest Expense for such period, PLUS (c) any accretion expense with respect to the Warrants (or any other Equity Rights with respect to any Obligor) for such period, PLUS (d) any non-cash expense related to any minority interests, PLUS (e) any non-cash expense related to foreign currency translation. "EBITDA RATIO" shall mean, as of any date, the ratio of: (a) all Indebtedness of the Obligors at such date, TO (b) for any date occurring: (i) on or after December 31, 1996, EBITDA for the period of four consecutive fiscal quarters ended on, or most recently ended prior to, such date, and - 8 - (ii) prior to December 31, 1996, the product of (x) EBITDA for the period commencing on January 1, 1996 and ending on the last day of the fiscal quarter ending on, or most recently ended prior to, such date, and (y) the Applicable Annualization Factor. "ELECTRA" shall mean Electra Investment Trust P.L.C., a corporation organized under the laws of England, and Electra Associates, Inc., a corporation organized under the laws of the State of Delaware. "ELIGIBLE FOREIGN INVENTORY" shall mean Eligible Inventory that is located in the United Kingdom. "ELIGIBLE INVENTORY" shall mean, as at any date, all Inventory (i) that is owned by an Obligor and, as at such date, is in the possession or under the control of an Obligor, (ii) that is located in a jurisdiction in any of the United States of America or the United Kingdom, (iii) as to which appropriate Uniform Commercial Code financing statements have been filed naming such Obligor as "debtor" and the Agent as "secured party" (or, with respect to inventory located in the United Kingdom, as to which the Lenders' security interest therein shall have been duly perfected by the filing of the Security Agreement pursuant to the Companies Act 1985), (iv) that is in good condition, (v) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such Inventory, its use or sale and (vi) that is either currently usable or currently saleable in the normal course of such Obligor's business without any notice to, or consent of, any governmental agency or department or division thereof, PROVIDED THAT (x) in no event shall Inventory that the Company or any Subsidiary Guarantor characterizes as obsolete or unsalable be "Eligible Inventory" and (y) the Majority Lenders (through the Agent) may at any time exclude from Eligible Inventory any type of Inventory that the Majority Lenders (in their sole discretion) determine to be unmarketable. "ELIGIBLE FOREIGN RECEIVABLES" shall mean Eligible Receivables owing from an account debtor whose principal place of business is located outside of the United States of America. "ELIGIBLE RECEIVABLES" shall mean, as at any date, the aggregate amount of all Receivables at such date payable to an Obligor other than the following (determined without duplication): (a) any Receivable not payable in Dollars or the lawful currencies of any of Japan, the United Kingdom, - 9 - Switzerland, the Republic of France, The Kingdom of The Netherlands or the Federal Republic of Germany, (b) any Receivable owing from a Subsidiary or Affiliate of such Obligor or by an officer, director or employee of any Obligor, (c) any Receivable owing from an account debtor (other than Matsushita) whose principal place of business is located outside of a country that is a member of the Organization for Economic Cooperation and Development, (d) any Receivable owing from an account debtor that the Majority Lenders (through the Agent) have notified the Company does not have a satisfactory credit standing (as determined in the sole discretion of the Majority Lenders), (e) any Receivable that, at the date of issuance of the invoice therefor, is payable more than 90 days after shipment of the related Inventory, (f) any Receivable that remains unpaid for more than 90 days after the date of the issuance of the original invoice therefor or is more than 60 days past due, (g) all Receivables of any account debtor if more than 25% of the aggregate amount of the Receivables owing from such account debtor shall at the time have remained unpaid for more than 90 days after the date of the issuance of the original invoices therefor or are more than 60 days past due, (h) Receivables owing from any account debtor (other than Boeing, Claircom, Honeywell, IFT or Matsushita) to the extent that the Receivables owing from such account debtor and its Affiliates exceed 15% of all Receivables then payable to the Obligors, (i) any Receivable as to which there is any unresolved dispute with the respective account debtor (but only to the extent of the amount thereof in dispute), (j) any Receivable owed by an account debtor to the extent of any amounts owed by any Obligor to such account debtor, (k) any Receivable evidenced by an Instrument (as defined in the Security Agreement) not pledged to and in the possession of the Agent, - 10 - (l) any Receivable as to which the Agent does not have a first priority perfected security interest for the benefit of the Lenders, and (m) any Receivable representing an obligation for goods sold on consignment, approval or a sale-or-return basis or subject to any other repurchase or return arrangement (other than any Receivable subject to repurchase pursuant to a distributor's exchange program PROVIDED THAT such Receivables may not exceed 10% of the aggregate Receivables attributable to any account debtor per annum). "ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any written or oral notice, claim, demand or other communication (collectively, a "CLAIM") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "ENVIRONMENTAL LAWS" shall mean any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "EQUITY ISSUANCE" shall mean (a) any issuance or sale by any Obligor after the Original Closing Date of (i) any capital stock, (ii) any warrants or options exercisable in respect of capital stock (other than any warrants or options issued to directors, officers or employees of such Obligor pursuant to - 11 - employee benefit plans established in the ordinary course of business and any capital stock issued upon the exercise of such warrants or options) or (iii) any other security or instrument representing an equity interest (or the right to obtain any equity interest) in the issuing or selling Person or (b) the receipt by the Obligor after the Original Closing Date of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution); PROVIDED that Equity Issuance shall not include (A) any such issuance or sale by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company, (B) any capital contribution by the Company or any Wholly Owned Subsidiary of the Company to any Subsidiary of the Company, (C) any warrants, options or other equity rights issued to directors, officers or employees of any Obligor and any capital stock of the Company issued upon the exercise of such warrants, or (D) the issuance of the Warrants or any capital stock, options or equity rights of the Company issued upon the exercise of the Warrants. "EQUITY RIGHTS" shall mean, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Company is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Company is a member. "EURODOLLAR LOANS" shall mean Loans that bear interest at rates based on rates referred to in the definition of "Eurodollar Rate" in this Section 1.01. "EURODOLLAR RATE" shall mean, with respect to any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported, at 11:00 a.m. (London time) on the date two Business Days prior to the first day of such Interest Period, on Telerate Access Service Page 3750 (British Bankers Association Settlement - 12 - Rate) as the London Interbank Offered Rate for Dollar deposits having a term comparable to such Interest Period and in an amount equal to or greater than $1,000,000. "EVENT OF DEFAULT" shall have the meaning assigned to such term in Section 10 hereof. "EXCESS CASH FLOW" shall mean, for any period, the excess of: (a) the sum of the following (without duplication): Cash Flow for such period, PLUS proceeds of business interruption or similar insurance during such period, plus decreases, to the extent occurring in the ordinary course of business, in Working Capital of the Obligors for such period, PLUS all tax refunds received by Obligors in cash during such period, MINUS (b) the sum of the following (without duplication): Debt Service for such period, PLUS increases, to the extent occurring in the ordinary course of business, in Working Capital of the Obligors for such period. For purposes of this definition of "Excess Cash Flow", "WORKING CAPITAL" shall have the meaning given to that term by GAAP, PROVIDED that Working Capital shall not include any Revolving Credit Loans, Swingline Loans or the Convertible Subordinated Notes. "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, PROVIDED that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the average of quotations for such day on such transactions received by the Agent (or any of its Affiliates) from three federal funds brokers of recognized standing selected by it. "FEE LETTER" shall mean that certain fee letter, dated September 18, 1996, from ING to the Company. - 13 - "FIXED CHARGES RATIO" shall mean, as at any date, the ratio of: (a) for any date occurring: (i) on or after December 31, 1996, Cash Flow for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date, and (ii) prior to December 31, 1996, the product of (x) Cash Flow for the period commencing on January 1, 1996 and ending on the last day of the fiscal quarter ending on, or most recently ended prior to, such date, times (y) the Applicable Annualization Factor, TO (b) Debt Service for such period. "FOREIGN TAXES" shall mean all present and future income, stamp, registration and other taxes and levies, imposts, deductions, charges, compulsory loans and withholdings whatsoever, and all interest, penalties or similar amounts with respect thereto, now or hereafter imposed, assessed, levied or collected by the United Kingdom or Switzerland or any political subdivision or taxing authority thereof or therein, or by any federation or association of or with which the United Kingdom or Switzerland may be a member or associated, on or in respect of this Agreement, the Loans, the Notes, the Letters of Credit, the Reimbursement Obligations or the other Basic Documents, the recording, registration, notarization or other formalization of any thereof, the enforcement thereof or the introduction thereof in any judicial proceedings, on or in respect of any payments of principal, interest, premiums, charges, fees or other amounts made on, under or in respect of any thereof. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those that, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "GAMBERG" shall mean Brian Gamberg. "GAMBERG DOCUMENTS" shall mean that certain Employment Agreement, between Cory and Gamberg, dated as of October 2, 1991, that certain Put Option Agreement, dated as of October 2, 1991, between Cory Holdings and Gamberg, and that certain Guaranty, dated October 2, 1991, by the Company in favor of Gamberg. "GUARANTEE" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become - 14 - contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB'S"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "HOLLINGSEAD" shall mean Hollingsead International Limited, a company organized under the laws of England. "HOLLINGSEAD INTERNATIONAL" shall mean Hollingsead International, Inc., a corporation organized under the laws of California. "HONEYWELL" shall mean Honeywell Inc. "IFT" shall mean International Flight Technologies, Inc., a Delaware corporation, or any successor thereto. "IMPERMISSIBLE QUALIFICATION" shall mean any qualification, exception or other statement in any opinion or certification of any independent public accountants which either (a) is of a "going concern" or similar nature; or (b) relates to the limited scope of examination of matters relevant to the financial statements referred to in such opinion or certificate. "INDEBTEDNESS" shall mean, for any Person (which shall be calculated for any Person without duplication): (a) - 15 - obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expanses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person; PROVIDED that "Indebtedness" shall not include any of the Company's obligations in respect of the Warrants. "ING" shall mean Internationale Nederlanden (U.S.) Capital Corporation. "INTERCOMPANY NOTE" shall mean a promissory note of Cory to the Company, in an aggregate principal amount not to exceed $1,500,000, evidencing a loan made by the Company (with the proceeds of Loans) to Cory solely to permit Cory to repay existing Indebtedness of Cory identified in Part A of Schedule II hereto, which promissory note shall contain such terms and provisions as shall be acceptable to the Lenders. "INTEREST COVERAGE RATIO" shall mean, as of any date, the ratio of: (a) for any date occurring: (i) on or after December 31, 1996, Cash Flow for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date, and (ii) prior to December 31, 1996, the product of (x) Cash Flow for the period commencing on January 1, 1996 and ending on the last day of the fiscal quarter ending on, or most recently ended prior to, such date, times (y) the Applicable Annualization Factor, to (b) Interest Expense that is payable in cash for such period. - 16 - "INTEREST EXPENSE" shall mean, for any period, all interest expense less interest income for such period for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP), including (without limitation) the following: (a) all interest in respect of Indebtedness (including, without limitation, the interest component of any payments in respect of Capital Lease Obligations) accrued or capitalized during such period (whether or not actually paid during such period), (b) the aggregate amount payable by the Company pursuant to Section 11.09 hereof (whether or not actually paid) during such period, and (c) the net amounts payable (or MINUS the net amount receivable) under Interest Rate and/or Commodity Price Protection Agreements during such period (whether or not actually paid or received during such period). "INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 4.05 hereof (or such longer period as may be agreed to by all of the Lenders), except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest Period for any Revolving Credit Loan would otherwise end after the Revolving Credit Commitment Termination Date such Interest Period shall end on the Revolving Credit Commitment Termination Date; (ii) no Interest Period for any Term Loan may commence before and end after any Principal Payment Date unless, after giving effect thereto, the aggregate principal amount of the Term Loans having Interest Periods that end after such Principal Payment Date shall be equal to or less than the aggregate principal amount of the Term Loans scheduled to be outstanding after giving effect to the payments of principal required to be made on such Principal Payment Date; (iii) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iv) notwithstanding clauses (i) and (ii) and (iii) above, no Interest Period for any Loan shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loan would otherwise be a shorter period, such Loan shall not be available hereunder for such period. "INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an interest rate swap, cap or collar agreement or - 17 - similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "INVENTORY" shall mean readily marketable materials, including raw materials, of a type manufactured or consumed by an Obligor in the ordinary course of business as presently conducted before any deduction by the Obligors for purposes of percentage of completion accounting (but excluding, in any event, all work-in-process EXCEPT for work-in-process inventory of Hollingsead International or the ADS Subsidiary). "INVESTMENT" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person), but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business); (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person; or (d) the entering into of any Interest Rate Protection Agreement or any Commodity Price Protection Agreement. "ISSUING BANK" shall mean Provident, as the issuer of Letters of Credit under Section 2.03 hereof, together with its successors and assigns in such capacity. "KERNER EMPLOYMENT AGREEMENT" shall mean the Employment Agreement dated January 24, 1985 between Tri-Star Electronics, Inc. and Alex Kerner, as amended by a letter agreement dated October 1, 1991 between Alex Kerner and the Company. "LETTER OF CREDIT" shall have the meaning assigned to such term in Section 2.03 hereof. "LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights - 18 - and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations, each as the same may be modified and supplemented and in effect from time to time. "LETTER OF CREDIT INTEREST" shall mean, for each Lender, such Lender's participation interest (or, in the case of the Issuing Bank, the Issuing Bank's retained interest) in the Issuing Bank's liability under Letters of Credit and such Lender's rights and interests in Reimbursement Obligations and fees, interest and other amounts payable in connection with Letters of Credit and Reimbursement Obligations. "LETTER OF CREDIT LIABILITY" shall mean, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the undrawn face amount of such Letter of Credit PLUS (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Company at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Lender (other than the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.03 hereof, and the Issuing Bank shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Lenders other than the Issuing Bank of their participation interests under said Section 2.03. "LEVERAGE RATIO" shall mean, at any time, the ratio of Total Liabilities to Net Worth of the Company at such time. "LIEN" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Basic Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "LOANS" shall mean the Revolving Credit Loans, the Term Loans and the Swingline Loans. "MAJORITY LENDERS" shall mean Lenders holding at least 66 2/3% of the sum of (a) the aggregate unpaid principal amount of the Loans PLUS (b) the aggregate amount of all Letter of Credit Liabilities OR, if no Loans or Letter of Credit Liabilities are outstanding, Lenders having at least 66 2/3% of the aggregate amount of the Commitments; PROVIDED THAT, at all - 19 - times during which there are two or fewer Lenders, "Majority Lenders" shall mean all Lenders. "MARGIN STOCK" shall mean "margin stock" within the meaning of Regulations G, U and X. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the Property, business, operations, customer relations, competitive position, financial condition, prospects, liabilities or capitalization of the Obligors taken as a whole, (b) the ability of any Obligor to perform its obligations under any of the Basic Documents to which it is a party, (c) the validity or enforceability of any of the Basic Documents, (d) the rights and remedies of the Lenders and the Agent under any of the Basic Documents or (e) the timely payment of the principal of or interest on the Loans or the Reimbursement Obligations or other amounts payable in connection therewith. "MATSUSHITA" shall mean, collectively, Matsushita Electric Industrial Company Limited, a Japanese corporation, Matsushita Electric Corporation of America, a Delaware corporation, Matsushita Avionics Systems Corporation, a Delaware corporation, and M.A.D.C., Inc., a Delaware corporation. "MONTHLY DATE" shall mean the last Business Day of each calendar month. "MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA. "NASSAU" shall mean Nassau Capital Partners L.P., a Delaware limited partnership, and NAS Partners I L.L.C., a Delaware limited liability company. "NASSAU EQUITY INFUSION" shall mean the purchase by Nassau for cash, on or about the date of Amendment No. 3 hereto, of shares of preferred stock of the Company and 1996 (February) Warrants for a purchase price equal to $6,500,000 pursuant to the 1996 (February) Securities Purchase Agreement. "NET AVAILABLE PROCEEDS" shall mean: (i) in the case of any Disposition, the amount of Net Cash Payments received in connection with such Disposition; (ii) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by any Obligor in respect of such Casualty Event net of (A) reasonable expenses incurred - 20 - by the Obligors in connection therewith and (B) contractually required repayments of Indebtedness to the extent secured by a Lien on such Property and any income and transfer taxes payable by any Obligor in respect of such Casualty Event; and (iii) in the case of any Equity Issuance, the aggregate amount of all cash received by the Obligors in respect of such Equity Issuance net of reasonable expenses incurred by the Company and its Subsidiaries in connection therewith. "NET CASH PAYMENTS" shall mean, with respect to any Disposition, the aggregate amount of all cash payments, and the fair market value of any non-cash consideration, received by any Obligor directly or indirectly in connection with such Disposition (other than Property that is intended to replace the Property that was the subject of the Disposition (which replacement Property must be subject to a purchase contract or other commitment to purchase within three months of the relevant Disposition)); PROVIDED that (a) Net Cash Payments shall be net of (i) the amount of any legal, title and recording tax expenses, commissions and other fees and expenses paid by any Obligor in connection with such Disposition and (ii) any Federal, state and local income or other taxes estimated to be payable by any Obligor as a result of such Disposition (but only to the extent that such estimated taxes are in fact paid to the relevant Federal, state or local governmental authority within six months of the date of such Disposition) and (b) Net Cash Payments shall be net of any repayments by any Obligor of Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on the Property that is the subject of such Disposition and (ii) the transferee of (or holder of a Lien on) such Property requires that such Indebtedness be repaid as a condition to the purchase of such Property. "NET SALES" shall mean, for any period, the sum for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP) of all revenues that should be classified as net sales on an income statement. "NET WORTH" shall mean, as at any date for any Person, the sum for such Person and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of paid-in capital (both in respect of common equity and preferred equity), PLUS - 21 - (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, MINUS the amount of such deficit), MINUS (c) the cost of treasury shares; PLUS (d) the value ascribed to the Warrants and the cumulative effect of any change in the valuation of the Warrants. PROVIDED that the following shall be disregarded in calculating "Net Worth": (i) any predecessor basis adjustment required under GAAP; and (ii) any foreign currency translation adjustments permitted under GAAP. "1996 (FEBRUARY) WARRANTS" shall mean the warrants acquired by Nassau, pursuant to the terms of the 1996 (February) Securities Purchase Agreement. "1996 (SEPTEMBER) WARRANTS" shall mean the warrants to be acquired by Nassau and Electra, pursuant to the terms of the 1996 (September) Securities Purchase Agreement. "1994 SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase Agreement, dated November 2, 1994, among the Company and Electra. "1996 (FEBRUARY) SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase Agreement, dated as of February 20, 1996, among the Company and Nassau. "1996 (SEPTEMBER) SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase Agreement, dated as of September 18, 1996, among the Company, Nassau and Electra. "NOTES" shall mean the Revolving Credit Notes and the Term Loan Notes. "ORIGINAL CLOSING DATE" shall mean the date of the Original Credit Agreement. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. - 22 - "PERMITTED INVESTMENTS" shall mean: (a) Dollars; (b) direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or of any agency thereof, in either case maturing not more than six months from the date of acquisition thereof; (c) certificates of deposit or bankers' acceptances maturing not more than six months from the date of acquisition thereof and overnight bank deposits, in each case with any Lender or any bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least $500,000,000; (d) repurchase obligations with a term of not more than seven days for underlying obligations of the types described in clauses (b) and (c) above and entered into with any financial institution meeting the qualifications described in clause (c) above; and (d) commercial paper of any Lender or that is rated A-1 or better or P-1 by Standard & Poor's Corporation or Moody's Investors Services, Inc., respectively, maturing not more than six months from the date of acquisition thereof. "PERSON" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "PLAN" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "POST-DEFAULT RATE" shall mean, during any period during which any Event of Default shall be continuing, and in respect of any principal of any Loan, any Reimbursement Obligation or any other amount payable under this Agreement, any Note or any other Basic Document, a rate per annum equal to 2% PLUS the Applicable Margin for Base Rate Loans PLUS the Base Rate as in effect from time to time (PROVIDED that, with respect to principal of a Eurodollar Loan, the "Post-Default Rate" for such principal shall be, during the period to but excluding the last day of the then current Interest Period therefor, 2% PLUS the interest rate for such Loan as provided in Section 3.02 hereof and, thereafter, the rate provided for above in this definition). "PRIME RATE" shall mean the arithmetic average of the rates of interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York (or their respective successors) as their respective prime commercial lending rates (or, as to any such bank that does not announce such a rate, such bank's "base" or other rate determined by the Agent to be the equivalent rate announced by such bank), EXCEPT THAT, if any such bank shall, for any period, cease to announce - 23 - publicly its prime commercial lending (or equivalent) rate, the Agent shall, during such period, determine the "Prime Rate" based upon the prime commercial lending (or equivalent) rates announced publicly by the other such banks. "PRINCIPAL PAYMENT DATES" shall mean the Quarterly Dates, commencing with September 30, 1995 through and including September 30, 2001. "PROCESS AGENT" shall have the meaning specified in Section 12.10(b) hereof. "PROPERTY" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "PROVIDENT" shall mean The Provident Bank, a banking corporation organized under the laws of the State of Ohio. "QUALIFIED PUBLIC OFFERING" shall mean an underwritten public offering of the common stock of the Company registered under the Securities Act of 1933, as amended. "QUARTERLY DATES" shall mean the last Business Day of March, June, September and December in each year, the first of which shall be the first such day after the date of this Agreement. "RECEIVABLES" shall mean, as at any date, the unpaid portion of the obligation, as stated on the respective invoice, of a customer of any Obligor in respect of Inventory or services sold and shipped by such Obligor to such customer, net of any credits, rebates or offsets owed to such customer (and for purposes hereof, a credit or rebate paid by check or draft of the Obligor shall be deemed to be outstanding until such check or draft shall have been debited to the account of such Obligor on which such check or draft was drawn). "REGULATIONS A, D, G, U AND X" shall mean, respectively, Regulations A, D, G, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "REGULATORY CHANGE" shall mean, with respect to any Lender, any change after the date of this Agreement in Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of financial institutions including such Lender of or under any Federal, state or foreign law or regulations (whether or not - 24 - having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the obligations of the Company then outstanding, or that may thereafter arise in respect of all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Bank in respect of any drawings under a Letter of Credit. "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "REVOLVING CREDIT COMMITMENT" shall mean, for each Lender, the obligation of such Lender to make Revolving Credit Loans in an aggregate principal amount at any one time outstanding up to but not exceeding (a) in the case of a Lender that is a party to this Agreement on the date hereof, the amount set opposite the name of such Lender on the signature pages hereof under the caption "Revolving Credit Commitment" and (b) in the case of any other Lender, the aggregate amount of Revolving Credit Commitments of other Lenders acquired by it pursuant to Section 12.06(b) hereof (in each case, as the same may be reduced from time to time pursuant to Section 2.04 hereof). The aggregate principal amount of the Revolving Credit Commitments as of the date hereof is $12,500,000. "REVOLVING CREDIT COMMITMENT PERCENTAGE" shall mean, with respect to any Lender, the ratio of (a) the amount of the Revolving Credit Commitment of such Lender to (b) the aggregate amount of the Revolving Credit Commitments of all of the Lenders. "REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean the third anniversary of the date hereof. "REVOLVING CREDIT LOANS" shall mean the loans provided for by Section 2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "REVOLVING CREDIT NOTES" shall mean the promissory notes provided for by Section 2.08(a) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. - 25 - "SECURITY AGREEMENT" shall mean a Security Agreement substantially in the form of Exhibit C-1 hereto between each Obligor and the Agent, as the same shall be modified and supplemented and in effect from time to time. "SECURITY AGREEMENT AMENDMENT" shall mean a Security Agreement Amendment substantially in the form of Exhibit C-2 hereto between each Obligor and the Agent. "SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement, the Security Agreement Amendment and all Uniform Commercial Code financing statements required by this Agreement or the Security Agreement to be filed with respect to the security interests in personal Property and fixtures created pursuant to the Security Agreement. "SELLING, GENERAL AND ADMINISTRATIVE EXPENSES" shall mean, for any period, the sum for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP) of all expenses (excluding depreciation and amortization) that should be classified as selling, general and administrative expenses on an income statement. "SELLING, GENERAL AND ADMINISTRATIVE EXPENSES RATIO" shall mean, as at any date, the ratio of: (a) for any date occurring: (i) on or after December 31, 1996, Selling, General and Administrative Expenses for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date, and (ii) prior to December 31, 1996, the product of (x) Selling, General and Administrative Expenses for the period commencing on January 1, 1996 and ending on the last day of the fiscal quarter ending on, or most recently ended prior to, such date, times (y) the Applicable Annualization Factor, TO (b) Net Sales for such period. "SENIOR SUBORDINATED DEBT" shall mean the Indebtedness of the Company in respect of the 12% Senior Subordinated Notes of the Company due December 31, 2001 issued pursuant to the 1994 Securities Purchase Agreement. "SENIOR SUBORDINATED DEBT AMENDMENTS" shall mean (i) Amendment No. 1, dated as of February 20, 1996, to the 1994 Securities Purchase Agreement and (ii) Amendment No. 1, dated as - 26 - of February 20, 1996, to the Advisory Agreement among the Company and Electra Inc. "SENIOR SUBORDINATED DEBT DOCUMENTS" shall mean all documents and agreements executed and delivered in connection with the original issuance of the Senior Subordinated Debt, including the 1994 Securities Purchase Agreement, the promissory notes evidencing Indebtedness thereunder and the Related Agreements referred to in the 1994 Securities Purchase Agreement, in each case, as the same shall, subject to Section 9.24 hereof, be modified and supplemented and in effect from time to time. "SERIES E PREFERRED STOCK" shall mean the preferred stock of the Company issued on September 18, 1996, and designated as Series E Preferred. "SERIES E PREFERRED STOCK DOCUMENTATION" shall mean all documents and agreements executed and delivered in connection with the original issuance of the Series E Preferred Stock, including the shares of Series E Preferred Stock and the 1996 (September) Securities Purchase Agreement. "SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "SWINGLINE COMMITMENT" shall mean the obligation of the Cash Management Agent to make Swingline Loans in an aggregate principal amount at any one time outstanding up to the lesser of $1,000,000 and the aggregate amount of the Revolving Credit Commitments as then in effect. "SWINGLINE LOANS" shall have the meaning given to that term in Section 2.01(c) hereof. "SWITZERLAND" shall mean the Swiss Confederation. "TERM LOAN COMMITMENT" shall mean, for each Lender, the obligation of such Lender to make a Term Loan in an aggregate amount up to but not exceeding the amount set opposite the name of such Lender on the signature page hereof under the caption - 27 - "Term Loan Commitment". The aggregate principal amount of the Term Loan Commitments is $15,000,000. "TERM LOAN NOTES" shall mean the promissory notes provided for by Section 2.08(b) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "TERM LOANS" shall mean the loans provided for by Section 2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "TOTAL LIABILITIES" shall mean, as at any date, the sum, for the Obligors (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all Indebtedness and (b) all other liabilities that should be classified as liabilities on a balance sheet, including, without limitation, all reserves (other than general contingency reserves) and all deferred taxes and other deferred items. "TRI-STAR TECHNOLOGIES" shall mean Tri-Star Technologies, a general partnership organized under the laws of the State of California. "TST PARTNERSHIP AGREEMENT" shall mean the General Partnership Agreement dated June 18, 1994 among Tri-Star Electronics, Inc., Alex Kerner and Andrei Grombchevsky, as amended by that certain agreement dated December 3, 1987 between Tri-Star Electronics, Inc. and Andrei Grombchevsky, and as further amended by a letter agreement dated October 1, 1991 between Alex Kerner and the Company. "TYPE" shall have the meaning assigned to such term in Section 1.03 hereof. "UNIDEC" shall mean Tri-Star Electronics Europe S.A., Mezzovico (formerly Unidec, S.A. Mezzovico), a corporation organized under the laws of Switzerland. "WARRANTS" shall mean the following: (a) the warrants described in Schedule V hereto, (b) the warrants issued under the Senior Subordinated Loan and Warrant Purchase Agreement, dated October 15, 1991 among Banc One Capital Partners Corporation, the Company and certain Obligors, (c) the 1994 Warrants, - 28 - (d) the warrants issued under the Senior Lender Warrant Agreement, dated as of November 2, 1994 among the Company, ING and Provident, (e) the 1996 (February) Warrants, (f) the 1996 (September) Warrants, and (g) the warrants issued under the Senior Lender Warrant Agreement, dated as of September 18, 1996 among the Company, ING and Provident. "WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. "ZERO BALANCE ACCOUNT" shall mean an account of the Company at the Cash Management Agent designated by the Cash Management Agent as the "Zero Balance Account." 1.02 ACCOUNTING TERMS AND DETERMINATIONS. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder (which, prior to the delivery of the first financial statements under Section 9.01 hereof, shall mean the audited financial statements as at December 31, 1993 referred to in Section 8.02 hereof). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest annual or monthly financial statements furnished to the Lenders pursuant to Section 9.01 hereof (or, prior to the delivery of the first financial statements under Section 9.01 hereof, used in the preparation of the audited financial statements as at December 31, 1993 referred to in Section 8.02 hereof) unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Lenders shall so object - 29 - in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 9.01 hereof, shall mean the audited financial statements referred to in Section 8.02 hereof). (b) The Company shall deliver to the Lenders at the same time as the delivery of any annual or monthly financial statement under Section 9.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or monthly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 9 hereof, the Company will not change the last day of its fiscal year from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively. 1.03 CLASSES AND TYPES OF LOANS. Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a Loan) refers to whether such Loan is a Revolving Credit Loan or a Term Loan, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Loans may be identified by both Class and Type. Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS. 2.01 LOANS. (a) REVOLVING CREDIT LOANS. Each Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars during the period from and including the Original Closing Date to but not including the Revolving Credit Commitment Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of the Revolving Credit Commitment of such Lender as in effect from time to time, PROVIDED that in no event shall the aggregate principal amount of all Revolving Credit Loans, together with the aggregate amount of all Letter of Credit - 30 - Liabilities and the aggregate amount of all Swingline Loans, exceed the aggregate amount of the Revolving Credit Commitments as in effect from time to time. Subject to the terms and conditions of this Agreement, during such period the Company may borrow, repay and reborrow the amount of the Revolving Credit Commitments by means of Base Rate Loans and Eurodollar Loans and may Convert Revolving Credit Loans of one Type into Revolving Credit Loans of the other Type (as provided in Section 2.09 hereof) or Continue Revolving Credit Loans that are Eurodollar Loans (as provided in Section 2.09 hereof). (b) TERM LOANS. Each Lender severally agrees, on the terms and conditions of this Agreement, to make a term loan to the Company in Dollars on the Original Closing Date in an aggregate principal amount up to but not exceeding the amount of the Term Loan Commitment of such Lender. Thereafter the Company may Convert Term Loans of one Type into Term Loans of the other Type (as provided in Section 2.09 hereof) or Continue Term Loans that are Eurodollar Loans (as provided in Section 2.09 hereof). (c) SWINGLINE LOANS. (i) The Cash Management Agent hereby agrees, on the terms and conditions of this Agreement, to make loans ("SWINGLINE LOANS") to the Company in Dollars during the period from and including the Original Closing Date to but excluding the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of the Swingline Commitment, PROVIDED that the aggregate unpaid principal amount of all Swingline Loans, all Letter of Credit Liabilities and all Revolving Credit Loans at any one time outstanding may not exceed the aggregate amount of the Revolving Credit Commitments. Subject to the terms of this Agreement, the Company may borrow, repay and reborrow the amount of the Swingline Commitment by means of Base Rate Loans. (ii) The Obligors shall at all times maintain with the Cash Management Agent one or more lockboxes (collectively, the "LOCKBOXES") pursuant to the Cash Management Agreement and, except to the extent otherwise required under the Security Agreement, shall instruct all account debtors on all of the accounts of the Obligors to remit payments to be made by checks or other drafts to the Lockboxes and to remit all payments to be made by wire transfer to the Zero Balance Account. Except as otherwise required under the Security Agreement, all amounts received by the Obligors from any account debtor, in addition to all cash received from any other source (including but not limited to proceeds from the sale of collateral for the Loans and judgments) shall be deposited in the Zero Balance Account upon receipt by an - 31 - Obligor. All receipts received in the Lockboxes shall be deposited on the day of receipt by the Cash Management Agent to the Zero Balance Account. As a matter of administrative convenience, the Cash Management Agent shall transmit all funds received in the Lockboxes twice each Business Day to the Zero Balance Account prior to 10:00 a.m., New York time, and 4:00 p.m., New York time, and any funds will be automatically applied at the end of each day to reduce the outstanding principal amount of Swingline Loans. (d) LIMIT ON EURODOLLAR LOANS. No more than five separate Interest Periods in respect of Eurodollar Loans from each Lender may be outstanding at any one time. 2.02 BORROWINGS. (a) The Company shall give the Agent notice of each borrowing of Loans (other than Swingline Loans) hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m. New York time on the date specified for each borrowing of such Loans hereunder, each Lender shall make available the amount of the Loan or Loans to be made by it on such date to (a) in the case of the borrowing of the Term Loans, the Agent, at account number 930-1-035763 (ABA No. 0210-000-21) maintained by the Agent with The Chase Manhattan Bank, and (b) in the case of borrowings of Revolving Credit Loans, the Cash Management Agent, at an account at Provident designated by the Cash Management Agent, in each case, in immediately available funds, for account of the Company. The amount so received by the Agent or the Cash Management Agent (as the case may be) shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account of the Company (designated by the Company) at the Cash Management Agent. (b) Swingline Loans shall be borrowed by the Company by means of writing checks drawn on the Cash Management Agent. (c) In the event that the Company does not repay any Swingline Loan by 11:00 a.m. (Cincinnati time) on the last Business Day of the week in which such Swingline Loan was made, at any time thereafter until the unpaid principal amount of such Swingline Loan shall have been paid in full, the Cash Management Agent may, and the Company hereby irrevocably authorizes and empowers (which power is coupled with an interest) the Cash Management Agent to, deliver, on behalf of the Company, to the Agent under Section 2.02(a) hereof a notice of borrowing of Revolving Credit Loans in an amount equal to the then unpaid principal amount of such Swingline Loan. Each Lender shall, not later than 2:00 p.m. (New York time), make available the amount of the Revolving Credit Loan to be made by it to the Cash Management Agent at the account specified in Section 2.02(a) - 32 - hereof and the amount so received by the Cash Management Agent shall be applied to such Swingline Loan. 2.03 LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, the Revolving Credit Commitments may be utilized, upon the request of the Company, in addition to the Revolving Credit Loans provided for by Section 2.01(a) hereof, by the issuance by the Issuing Bank of letters of credit (collectively, "LETTERS OF CREDIT") for account of the Company or any of its Subsidiaries (as specified by the Company), PROVIDED that in no event shall (i) the aggregate amount of all Letter of Credit Liabilities, together with the aggregate principal amount of the Revolving Credit Loans, exceed the aggregate amount of the Revolving Credit Commitments as in effect from time to time, and (ii) the expiration date of any Letter of Credit extend beyond the earlier of the Revolving Credit Commitment Termination Date and the date 12 months following the issuance of such Letter of Credit. The following additional provisions shall apply to Letters of Credit: (a) The Company shall give the Agent at least three Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than 30 days preceding the Revolving Credit Commitment Termination Date) each Letter of Credit is to be issued and the account party or parties therefor and describing in reasonable detail the proposed terms of such Letter of Credit (including the beneficiary thereof) and the nature of the transactions or obligations proposed to be supported thereby (including whether such Letter of Credit is to be a commercial letter of credit or a standby letter of credit). Upon receipt of any such notice, the Agent shall advise the Issuing Bank of the contents thereof. (b) On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Revolving Credit Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Lender's Revolving Credit Commitment Percentage of the then undrawn face amount of such Letter of Credit. Each Lender (other than the Issuing Bank) agrees that, upon the issuance of any Letter of Credit hereunder, it shall automatically acquire a participation in the Issuing Bank's liability under such Letter of Credit in an amount equal to such Lender's Revolving Credit Commitment Percentage of such liability, and each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and - 33 - discharge when due, its Revolving Credit Commitment Percentage of the Issuing Bank's liability under such Letter of Credit. (c) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the Issuing Bank shall promptly notify the Company (through the Agent) of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such beneficiary in respect of such demand. Notwithstanding the identity of the account party of any Letter of Credit, the Company hereby unconditionally agrees to pay and reimburse the Agent for account of the Issuing Bank for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind. (d) Forthwith upon its receipt of a notice referred to in clause (c) of this Section 2.03, the Company shall advise the Agent whether or not the Company intends to borrow hereunder to finance its obligation to reimburse the Issuing Bank for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Section 4.05 hereof. In the event that the Company fails to so advise the Agent, or if the Company fails to reimburse the Issuing Bank for a payment under a Letter of Credit by the date of such payment, the Agent shall give each Lender prompt notice of the amount of the demand for payment, specifying such Lender's Revolving Credit Commitment Percentage of the amount of the related demand for payment. (e) Each Lender (other than the Issuing Bank) shall pay to the Agent for account of the Issuing Bank at account number 930-1-035763 (ABA No. 0210-000-21) maintained by the Agent with The Chase Manhattan Bank, in Dollars and in immediately available funds, the amount of such Lender's Revolving Credit Commitment Percentage of any payment under a Letter of Credit upon notice by the Issuing Bank (through the Agent) to such Lender requesting such payment and specifying such amount. Each such Lender's obligation to make such payment to the Agent for account of the Issuing Bank under this clause (e), and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, the failure of any other Lender to make its payment under this clause (e), the financial condition of the Company (or any other account party), the existence of any Default or the termination of - 34 - the Commitments. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender shall default in its obligation to make any such payment to the Agent for account of the Issuing Bank, for so long as such default shall continue the Agent may at the request of the Issuing Bank withhold from any payments received by the Agent under this Agreement or any Note for account of such Lender the amount so in default and, to the extent so withheld, pay the same to the Issuing Bank in satisfaction of such defaulted obligation. (f) Upon the making of each payment by a Lender to the Issuing Bank pursuant to clause (e) above in respect of any Letter of Credit, such Lender shall, automatically and without any further action on the part of the Agent, the Issuing Bank or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by the Company hereunder and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Lender's Revolving Credit Commitment Percentage in any interest or other amounts payable by the Company hereunder and under such Letter of Credit Documents in respect of such Reimbursement Obligation (other than the commissions, charges, costs and expenses payable to the Issuing Bank pursuant to clause (g) of this Section 2.03). Upon receipt by the Issuing Bank from or for account of the Company of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of setoff or application of proceeds of any collateral security) the Issuing Bank shall promptly pay to the Agent for account of each Lender entitled thereto, such Lender's Revolving Credit Commitment Percentage of such payment, each such payment by the Issuing Bank to be made in the same money and funds in which received by the Issuing Bank. In the event any payment received by the Issuing Bank and so paid to the Lenders hereunder is rescinded or must otherwise be returned by the Issuing Bank, each Lender shall, upon the request of the Issuing Bank (through the Agent), repay to the Issuing Bank (through the Agent) the amount of such payment paid to such Lender, with interest at the rate specified in clause (j) of this Section 2.03. (g) The Company shall pay to the Agent for account of each Lender (ratably in accordance with their respective Commitment Percentages) a letter of credit fee in respect of each Letter of Credit in an amount equal to 2-1/2% per annum of the daily average undrawn face amount of such Letter of Credit for the period from and including the date of - 35 - issuance of such Letter of Credit (i) in the case of a Letter of Credit that expires in accordance with its terms, to and including such expiration date and (ii) in the case of a Letter of Credit that is drawn in full or is otherwise terminated other than on the stated expiration date of such Letter of Credit, to but excluding the date such Letter of Credit is drawn in full or is terminated (such fee to be non-refundable, to be paid in arrears on each Monthly Date and on the Revolving Credit Commitment Termination Date and to be calculated for any day after giving effect to any payments made under such Letter of Credit on such day). In addition, the Company shall pay to the Agent for account of the Issuing Bank a fronting fee in respect of each Letter of Credit in an amount equal to 1/4 of 1% per annum of the daily average undrawn face amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit (i) in the case of a Letter of Credit that expires in accordance with its terms, to and including such expiration date and (ii) in the case of a Letter of Credit that is drawn in full or is otherwise terminated other than on the stated expiration date of such Letter of Credit, to but excluding the date such Letter of Credit is drawn in full or is terminated (such fee to be refundable to the extent such Letter of Credit is not outstanding for the entire period for which such fee was paid or the face amount of such Letter of Credit is reduced during such period, to be paid in advance on each Monthly Date and to be calculated for any day after giving effect to any payments made under such Letter of Credit on such day) plus all charges, costs and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit (including, without limitation, with respect to each Letter of Credit, an origination fee in an amount equal to the greater of (x) 1/4 of 1% of the face amount of such Letter of Credit and (y) $500, payable on the date of issuance thereof) and drawings and other transactions relating thereto. (h) Promptly following the end of each calendar month, the Issuing Bank shall deliver (through the Agent) to each Lender and the Company a notice describing the aggregate amount of all Letters of Credit outstanding at the end of such month. Upon the request of any Lender from time to time, the Issuing Bank shall deliver any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding. (i) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 7 hereof, be subject to the conditions precedent that (i) such Letter of Credit shall be in such - 36 - form, contain such terms and support such transactions as shall be satisfactory to the Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type, (ii) the Company shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as the Issuing Bank shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type, PROVIDED that in the event of any conflict between any such application, agreement or other instrument and the provisions of this Agreement or any Security Document, the provisions of this Agreement and the Security Documents shall control, and (iii) no Event of Default shall have occurred and be continuing (and the Issuing Bank shall not issue any Letter of Credit after it has received notification from the Agent or any Lender that any Event of Default is continuing); PROVIDED THAT the Agent, upon the request of the Majority Lenders, may instruct the Issuing Bank to issue a Letter of Credit notwithstanding the occurrence and continuation of an Event of Default. (j) To the extent that any Lender shall fail to pay any amount required to be paid pursuant to clause (e) or (f) of this Section 2.03 on the due date therefor, such Lender shall pay interest to the Issuing Bank (through the Agent) on such amount from and including such due date to but excluding the date such payment is made (i) during the period from and including such due date to but excluding the date three Business Days thereafter, at a rate per annum equal to the Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at a rate per annum equal to the Base Rate (as in effect from time to time) plus 2%. (k) The issuance by the Issuing Bank of any modification or supplement to any Letter of Credit hereunder shall be subject to the same conditions applicable under this Section 2.03 to the issuance of new Letters of Credit, and no such modification or supplement shall be issued hereunder unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such modified or supplemented form or (ii) each Lender shall have consented thereto. The Company hereby indemnifies and holds harmless each Lender and the Agent from and against any and all claims and damages, losses, liabilities, costs or expenses that such Lender or the Agent may incur (or that may be claimed against such Lender or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or - 37 - refusal to pay by the Issuing Bank under any Letter of Credit; PROVIDED that the Company shall not be required to indemnify any Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) in the case of the Issuing Bank, the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.03 is intended to limit the other obligations of the Company, any Lender or the Agent under this Agreement. 2.04 CHANGES OF COMMITMENTS. (a) The aggregate amount of the Revolving Credit Commitments shall be automatically reduced to zero on the Revolving Credit Commitment Termination Date. (b) The Company shall have the right at any time or from time to time (i) so long as no Revolving Credit Loans, Swingline Loans or Letter of Credit Liabilities are outstanding, to terminate the Revolving Credit Commitments and (ii) to reduce the aggregate unused amount of the Revolving Credit Commitments (for which purpose use of the Revolving Credit Commitments shall be deemed to include the aggregate amount of Letter of Credit Liabilities and Swingline Loans); PROVIDED that (x) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof, (y) each partial reduction shall be in an aggregate amount at least equal to $100,000 (or a larger multiple of $100,000) and, (z) the same shall not result in a breach of any provision of the Senior Subordinated Debt Documents. (c) Any portion of the Term Loan Commitments not used on the Original Closing Date shall be automatically terminated. (d) The Commitments once terminated or reduced may not be reinstated. 2.05 COMMITMENT FEE. The Company shall pay to the Agent for account of each Lender a commitment fee on the daily average unused amount of such Lender's Revolving Credit Commitment (for which purpose the aggregate amount of any Letter of Credit Liabilities and any Swingline Loans shall be deemed to be a pro rata (based on the Revolving Credit Commitments) use of each Lender's Revolving Credit Commitment), for the period from and including the Original Closing Date to but not including the earlier of the date such Revolving Credit Commitment is terminated and the Revolving Credit Commitment Termination Date, - 38 - at a rate per annum equal to 1/2 of 1%. Accrued commitment fees shall be payable in arrears on each Monthly Date and on the earlier of the date the Revolving Credit Commitments are terminated and the Revolving Credit Commitment Termination Date. 2.06 LENDING OFFICES. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. 2.07 SEVERAL OBLIGATIONS: REMEDIES INDEPENDENT. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither any Lender nor the Agent shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender, and no Lender shall have any obligation to the Agent or any other Lender for the failure by such Lender to make any Loan required to be made by such Lender. Without prejudice to Section 10 hereof, the amounts payable by the Company at any time hereunder and under the Notes 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 the Notes, and it shall not be necessary for any other Lender or the Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.08 NOTES. (a) The Revolving Credit Loans made by each Lender shall be evidenced by a single promissory note of the Company substantially in the form of Exhibit A-1 hereto, dated the Original Closing Date, payable to such Lender in a principal amount equal to the amount of its Revolving Credit Commitment as originally in effect and otherwise duly completed. (b) The Term Loans made by each Lender shall be evidenced by a single promissory note of the Company substantially in the form of Exhibit A-2 hereto, dated the Original Closing Date, payable to such Lender in a principal amount equal to the amount of its Term Loan Commitment and otherwise duly completed. (c) The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Loan of each Class made by each Lender to the Company, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books and, prior to any transfer of the Note evidencing the Loans of such Class held by it, endorsed by such Lender on the schedule attached to such Note or any continuation thereof; PROVIDED that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations - 39 - of the Company to make a payment when due of any amount owing hereunder or under such Note in respect of the Loans to be evidenced by such Note. (d) No Lender shall be entitled to have its Notes subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of such Lender's relevant Commitment, Loans and Notes pursuant to Section 12.06(b) hereof. 2.09 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS. Subject to Section 4.04 hereof, the Company shall have the right to prepay Loans, or to Convert Loans of one Type into Loans of the other Type or Continue Eurodollar Loans, at any time or from time to time, PROVIDED that: (a) the Company shall give the Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder); (b) prepayments of the Term Loans shall be applied to the installments of the Term Loans in the inverse order of their maturities; and (c) Swingline Loans may only be Base Rate Loans. Notwithstanding the foregoing, and without limiting the rights and remedies of the Lenders under Section 10 hereof, in the event that any Event of Default shall have occurred and be continuing, the Agent may (and at the request of the Majority Lenders shall) suspend the right of the Company to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s) of the respective Interest Periods therefor) or Continued, as the case may be, as Base Rate Loans. 2.10 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS. (a) BORROWING BASE. Until the Revolving Credit Commitment Termination Date, the Company shall from time to time prepay the Revolving Credit Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (g) below) in such amounts as shall be necessary so that at all times the aggregate outstanding amount of the Revolving Credit Loans together with the outstanding Letter of Credit Liabilities shall not exceed the Borrowing Base, such amount to be applied, first, to Revolving Credit Loans outstanding and, second, as cover for Letter of Credit Liabilities outstanding. (b) CASUALTY EVENTS. Upon the date 15 days following the receipt by any Obligor of the proceeds of insurance (other than business interruption or similar insurance unless (x) at the time of such receipt any amount owing by any Obligor hereunder or under the Notes shall be due and unpaid and (y) immediately prior - 40 - to the Casualty Event giving rise to the receipt of such insurance proceeds, the Obligors were not in compliance with their obligations under Section 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16 or 9.17 hereof), condemnation award or other compensation in respect of any Casualty Event affecting any Property of any Obligor (or upon such earlier date as such Obligor shall have determined not to repair or replace the Property affected by such Casualty Event), the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (g) below), and the Revolving Credit Commitments shall be subject to automatic reduction, in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not theretofore applied to or designated for the repair or replacement of such Property, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (f) of this Section 2.10. Notwithstanding the foregoing, to the extent that Net Available Proceeds of any Casualty Event have been designated for the repair or replacement of Property affected by a Casualty Event and a purchase order or other commitment in respect of purchase or repair of such Property has not been entered into within 90 days of receipt of the proceeds of insurance, the amount of Net Available Proceeds designated for such repair or replacement shall be applied to prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (g) below) and reduce the Revolving Credit Commitments as specified in clause (f) of this Section 2.10. Nothing in this clause (b) shall be deemed to limit any obligation of an Obligor pursuant to any of the Security Documents to remit to a collateral or similar account (including, without limitation, the Collateral Account) maintained by the Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event. (c) EQUITY ISSUANCE. Upon any Equity Issuance, the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (g) below), and the Revolving Credit Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds thereof, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (f) of this Section 2.10. (d) EXCESS CASH FLOW. Not later than the date 90 days after the end of each fiscal year of the Company, beginning with the fiscal year commencing on January 1, 1995, the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (g) below), and the Revolving Credit Commitments shall be subject to automatic reduction, in an aggregate amount equal to the excess of (A) 70% of Excess Cash Flow for such fiscal year over (B) the aggregate amount of - 41 - prepayments of Term Loans made during such fiscal year pursuant to Section 2.09 hereof and, after the payment in full of the Term Loans, the aggregate amount of voluntary reductions of Revolving Credit Commitments made during such fiscal year pursuant to Section 2.09 hereof, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (f) of this Section 2.10. (e) SALE OF ASSETS. Without limiting the obligation of the Company to obtain the consent of the Majority Lenders pursuant to Section 9.05 hereof to any Disposition not otherwise permitted hereunder, in the event that the Net Available Proceeds of any Disposition (a "CURRENT DISPOSITION"), and of all prior Dispositions on an annual basis as to which a prepayment has not yet been made under this Section 2.10(e), shall exceed $250,000 then, no later than five Business Days prior to the occurrence of such Current Disposition, the Company will deliver to the Lenders a statement, certified by the chief financial officer of the Company, in form and detail satisfactory to the Agent, of the amount of the Net Available Proceeds of the Current Disposition and of all such prior Dispositions and will prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (g) below), and the Revolving Credit Commitment shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of the Current Disposition and such prior Dispositions, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (f) of this Section 2.10. (f) APPLICATION. Prepayments and reductions of Commitments described in the above clauses of this Section 2.10 (other than in clause (a) above) shall be effected as follows: (i) first, the amount of the prepayment specified in such clauses shall be applied to the installments of the Term Loans then outstanding in the inverse order of the maturity thereof; and (ii) second, the Revolving Credit Commitments shall be automatically reduced in an amount equal to any excess over the amount referred to in the foregoing clause (i) (and to the extent that, after giving effect to such reduction, the aggregate principal amount of Revolving Credit Loans, together with the aggregate amount of all Letter of Credit Liabilities, would exceed the Revolving Credit Commitments, the Company shall, first, prepay Revolving Credit Loans and, second, provide cover fox Letter of Credit Liabilities as specified in clause (g) below, in an aggregate amount equal to such excess). - 42 - (g) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that the Company shall be required pursuant to this Section 2.10 to provide cover for Letter of Credit Liabilities, the Company shall effect the same by paying to the Agent immediately available funds in an amount equal to the required amount, which funds shall be retained by the Agent in the Collateral Account (as provided therein as collateral security in the first instance for Letter of Credit Liabilities) until such time as all Letters of Credit shall have been terminated and all of the Letter of Credit Liabilities paid in full. 2.11 PREPAYMENT FEES. The Company agrees to pay the following prepayment fees: (a) A prepayment fee of $400,000 shall be due and payable by the Company to the Agent, for account of the Lenders, upon repayment of all principal and interest on the Loans and termination of the Commitments hereunder pursuant to Section 2.09 or Section 2.10 hereof or otherwise (exclusive, however, of repayment pursuant to paragraphs (a), (b) or (d) of Section 2.10), if the same shall occur on or prior to February 20, 1997. (b) A prepayment fee of $200,000 shall be due and payable by the Company to the Agent, for account of the Lenders, upon repayment of all principal and interest on the Loans and termination of the Commitments hereunder pursuant to Section 2.09 or Section 2.10 hereof or otherwise (exclusive, however, or repayment pursuant to paragraphs (a), (b) or (d) of Section 2.10), if the same shall occur after February 20, 1997 and on or prior to February 20, 1998. Notwithstanding the foregoing, no such prepayment fee shall be payable upon repayment of all principal and interest on the Loans and termination of the Commitments hereunder pursuant to Section 2.10(c) hereof in connection with a Qualified Public Offering. Section 3. PAYMENTS OF PRINCIPAL AND INTEREST. 3.01 REPAYMENT OF LOANS. (a) The Company hereby promises to pay to the Agent for account of each Lender the entire outstanding principal amount of such Lender's Revolving Credit Loans, and each Revolving Credit Loan shall mature, on the Revolving Credit Commitment Termination Date. - 43 - (b) The Company hereby promises to pay to the Agent for account of each Lender the principal of such Lender's Term Loans in 26 installments payable on the Principal Payment Dates as follows:
PRINCIPAL PAYMENT DATE AMOUNT OF INSTALLMENT ($) ---------------------- ------------------------- September 30, 1995 $ 500,000 December 31, 1995 1,000,000 March 31, 1996 through (and including) December 31, 1996 375,000 March 31, 1997 through (and including) December 31, 1997 468,750 March 31, 1998 through (and including) December 31, 1998 562,500 March 31, 1999 through (and including) June 30, 2001 656,250 September 30, 2001 1,312,500
If the Company does not borrow the full amount of the aggregate Term Loan Commitments on the Original Closing Date, the shortfall shall be applied to reduce the foregoing installments ratably. (c) The Company hereby promises to pay to the Cash Management Agent the principal of each Swingline Loan, and each Swingline Loan shall mature, on the Revolving Credit Commitment Termination Date. 3.02 INTEREST. The Company hereby promises to pay to the Agent for account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) PLUS the Applicable Margin; (b) during such periods as such Loan is a Eurodollar Loan, for each Interest Period relating thereto, the - 44 - Eurodollar Rate for such Loan for such Interest Period plus the Applicable Margin. Notwithstanding the foregoing, during the continuance of any Event of Default, the Company hereby promises to pay to the Agent for account of each Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender, on any Reimbursement Obligation held by such Lender and on any other amount payable by the Company hereunder or under the Notes held by such Lender to or for account of such Lender. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, monthly on the Monthly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than three months, at three-month intervals following the first day of such Interest Period, and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of the other Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. 4.01 PAYMENTS. (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be made by the Company under this Agreement and the Notes and the Fee Letter, and, except to the extent otherwise provided therein, all payments to be made by the Obligors under any other Basic Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Cash Management Agent at an account maintained at Provident designated by the Cash Management Agent, not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Lender for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of the Company with such Lender (with notice to the Company and the Agent). The Cash Management Agent may (but shall not be obligated to) debit the amount of any payment to be - 45 - made by the Company hereunder or under any other Basic Document to the Zero Balance Account (with notice to the Company). (c) The Company shall, at the time of making each payment under this Agreement or any Note for account of any Lender, specify to the Agent (which shall so notify the intended recipient(s) thereof) the Loans, Reimbursement Obligations or other amounts payable by the Company hereunder to which such payment is to be applied (and in the event that the Company fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may distribute such payment to the Lenders for application in such manner as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to be appropriate). In no event shall an Event of Default be designated to have occurred as a result of, nor shall the Company be liable for any costs resulting from, the failure of the Agent to apply any payment in the manner specified by the Company. (d) Except to the extent otherwise provided in the last sentence of Section 2.03(e) hereof, each payment received by the Agent or the Cash Management Agent under this Agreement or any Note for account of any Lender shall be paid by the Agent or the Cash Management Agent (as the case may be) promptly to such Lender, in immediately available funds, for account of such Lender's Applicable Lending Office for the Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) each borrowing of Loans of a particular Class from the Lenders under Section 2.01 hereof shall be made from the Lenders, each payment of commitment fee under Section 2.05 hereof in respect of the Revolving Credit Commitments shall be made for account of the Lenders, and each termination or reduction of the amount of the Revolving Credit Commitments under Section 2.04 hereof shall be applied to the respective Commitments of such Class of the Lenders, pro rata according to the amounts of their respective Commitments of such Class; (b) the making, Conversion and Continuation of Revolving Credit Loans and Term Loans of a particular Type (other than Conversions provided for by Section 5.04 hereof) shall be made pro rata among the Lenders according to the amounts of their respective Revolving Credit and Term Loan Commitments (in the case of making of Loans) or their respective Revolving Credit and Term Loans (in the case of Conversions and Continuations of Loans) and the then current Interest Period for each Loan of such - 46 - Type shall be coterminous; (c) each payment or prepayment of principal of Revolving Credit Loans or Term Loans by the Company shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans of such Class held by them; and (d) each payment of interest on Revolving Credit Loans and Term Loans by the Company shall be made for account of the Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders. 4.03 COMPUTATIONS. Except as otherwise provided herein, interest on Loans, letter of credit fees and commitment fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant to Section 2.10 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, each borrowing, Conversion and partial prepayment of principal of Loans shall be in an aggregate amount at least equal to $100,000 or a larger multiple of $50,000 (borrowings, Conversions or prepayments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). 4.05 CERTAIN NOTICES. Notices by the Company to the Agent of terminations or reductions of the Revolving Credit Commitments, of borrowings, Conversions, Continuations and optional prepayments of Loans and of Classes of Loans, of Types of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Agent not later than 12 noon New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: - 47 -
NUMBER OF BUSINESS NOTICE DAYS PRIOR ------ ---------- Termination or reduction of Commitments 3 Borrowing or prepayment of, or Conversions into, Base Rate Loans same day Borrowing or prepayment of, Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount of the Revolving Credit Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Class of Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Agent shall promptly notify the Lenders of the contents of each such notice. In the event that the Company fails to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. 4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been notified by a Lender or the Company (the "PAYOR") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Lender) the proceeds of a Loan to be made by such Lender hereunder or (in the case of the Company) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made - 48 - the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "ADVANCE DATE") such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor shall return the Required Payment to the Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Company to the Lenders, the Company and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of the Company under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment) and (ii) if the Required Payment shall represent proceeds of a Loan to be made by the Lenders to the Company, the Payor and the Company shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case the Company shall return the Required Payment to the Agent, without limiting any claim the Company may have against the Payor in respect of the Required Payment). 4.07 SHARING OF PAYMENTS. ETC. (a) Each Obligor agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for account of such Obligor at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, Reimbursement Obligations or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to such Obligor), in which case it shall promptly notify such Obligor and the Agent thereof, PROVIDED that such Lender's failure to give such notice shall not affect the validity thereof. - 49 - (b) If any Lender shall obtain from any Obligor payment of any principal of or interest on any Loan or Letter of Credit Liability owing to it or payment of any other amount under this Agreement or any other Basic Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans or Letter of Credit Liabilities or such other amounts then due hereunder or thereunder by such Obligor to such Lender than the percentage received by any other Lender, it shall promptly purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans or Letter of Credit Liabilities or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans or Letter of Credit Liabilities or such other amounts, respectively, owing to each of the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Lender so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Obligor. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. - 50 - Section 5. YIELD PROTECTION. ETC. 5.01 ADDITIONAL COSTS. (a) The Company shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs that such Lender determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change that: (i) shall subject any Lender (or its Applicable Lending Office for any of such Loans) to any tax, duty or other charge in respect of such Loans or its Notes or changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Notes in respect of any of such Loans (excluding changes in the rate of tax on the overall net income of such Lender or of such Applicable Lending Office by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than, in the case of any Lender for any period as to which the Company is required to pay any amount under paragraph (e) below, the reserves against "Eurocurrency Liabilities" under Regulation D therein referred to) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including, without limitation, any of such Loans or any deposits referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof), or any commitment of such Lender (including, without limitation, the Commitments of such Lender hereunder); or (iii) imposes any other condition affecting this Agreement or its Notes (or any of such extensions of credit or liabilities) or its Commitments. If any Lender requests compensation from the Company under this Section 5.01(a), the Company may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender thereafter to make or Continue Loans of the Type with respect to which such compensation is requested, or to Convert Loans of any other Type into Loans of such Type, until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), - 51 - PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) Without limiting the effect of the provisions of paragraph (a) of this Section 5.01, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender that includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Lender so elects by notice to the Company (with a copy to the Agent), the obligation of such Lender to make or Continue, or to Convert Loans of any other Type into, Loans of such Type hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender (or, without duplication, the bank holding company or foreign bank of which such Lender is a subsidiary) for any costs that it determines are attributable to the maintenance by such Lender (or any Applicable Lending Office or such bank holding company or foreign bank), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) implementing any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord (including, without limitation, the Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its Commitments or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Applicable Lending Office or such bank holding company or foreign bank) to a level below that which such Lender (or any Applicable Lending Office or such bank holding company or foreign bank) could have achieved but for such law, - 52 - regulation, interpretation, directive or request). For purposes of this Section 5.01(c) and Section 5.06 hereof, "BASLE ACCORD" shall mean the risk-based capital framework described by the Base Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. (d) Each Lender shall notify the Company of any event occurring after the date of this Agreement entitling such Lender to compensation under paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Lender obtains actual knowledge thereof; PROVIDED that (i) if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, except that such Lender shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Lender will furnish to the Company a certificate setting forth the basis and amount of each request by such Lender for compensation under paragraph (a) or (c) of this Section 5.01. Determinations and allocations by any Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive, PROVIDED that such determinations and allocations are made on a reasonable basis. (e) Without limiting the effect of the foregoing, the Company shall pay to each Lender on the last day of each Interest Period so long as such Lender is maintaining reserves against "Eurocurrency liabilities" under Regulation D (or, unless the provisions of paragraph (b) above are applicable, so long as such Lender is, by reason of any Regulatory Change, maintaining reserves against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or against any category of extensions of credit or other assets of such Lender - 53 - which includes any Eurodollar Loans) an additional amount (determined by such Lender and notified to the Company through the Agent) equal to the product of the following for each Eurodollar Loan for each day during such Interest Period: (i) the principal amount of such Eurodollar Loan outstanding on such day; and (ii) the remainder of (x) a fraction the numerator of which is the rate (expressed as a decimal) at which interest accrues on such Eurodollar Loan for such Interest Period as provided in this Agreement (less the Applicable Margin) and the denominator of which is one MINUS the effective rate (expressed as a decimal) at which such reserve requirements are imposed on such Lender on such day MINUS (y) such numerator; and (iii) 1/360. 5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Rate for any Interest Period: (a) the Agent determines, which determination shall be conclusive, that the quotations of interest rates referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) if the Majority Lenders determine which determination shall be conclusive, and notify the Agent that the relevant rates of interest referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely adequately to cover the cost to such Lenders of making or maintaining such Type of Loans for such Interest Period; then the Agent shall give the Company and each Lender prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Loans of such Type, to Continue Loans of such Type or to Convert Loans of any other Type into Loans of such Type, and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of such Type, either prepay such Loans or Convert such Loans into another Type of Loan in accordance with Section 2.09 hereof. 5.03 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any - 54 - Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Company thereof (with a copy to the Agent) and such Lender's obligation to make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable). 5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make Eurodollar Loans or to Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof (Loans of such Type being herein called "AFFECTED LOANS"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03 hereof, on such earlier date as such Lender may specify to the Company with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Lender gives notice to the Company with a copy to the Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this Section 5.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. 5.05 COMPENSATION. The Company shall pay to the Agent for account of each Lender, upon the request of such Lender - 55 - through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense that such Lender determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Eurodollar Loan made by such Lender for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such Lender on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued on the principal amount so paid, prepaid, Converted or not borrowed for the period from the date of such payment, prepayment, Conversion or failure to borrow to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). 5.06 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without limiting the obligations of the Company under Section 5.01 hereof (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder and the result shall be to increase the cost to any Lender or Lenders of issuing (or purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit hereunder or reduce any amount receivable by any Lender hereunder in respect of any - 56 - Letter of Credit (which increases in cost, or reductions in amount receivable, shall be the result of such Lender's or Lenders' reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by such Lender or Lenders (through the Agent), the Company shall pay immediately to the Agent for account of such Lender or Lenders, from time to time as specified by such Lender or Lenders (through the Agent), such additional amounts as shall be sufficient to compensate such Lender or Lenders (through the Agent) for such increased costs or reductions in amount. A statement as to such increased costs or reductions in amount incurred by any such Lender or Lenders, submitted by such Lender or Lenders to the Company shall be conclusive in the absence of manifest error as to the amount thereof. 5.07 TAXES. (a) All payments on account of the principal of and interest on the Loans, the Letters of Credit, Reimbursement Obligations, fees and other amounts payable hereunder by the Obligors to or for the account of the Agent or any Lender, including, without limitation, amounts payable under Section 5.07(b) hereof, shall be made free and clear of and without reduction or liability for Foreign Taxes and Covered Taxes. Each Obligor will pay all Foreign Taxes and Covered Taxes for their own respective accounts, prior to the date on which penalties attach thereto, except for any Foreign Taxes (other than Foreign Taxes imposed on or in respect of any amount payable hereunder, under the Notes or under any other Basic Document) the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained, so long as no claim for such Foreign Taxes is made on the Agent or any Lender. (b) Each Obligor shall indemnify the Agent and each Lender against, and reimburse the Agent and each Lender on demand for, any Foreign Taxes and any Covered Taxes and any loss, liability, claim or expense, including interest, penalties and legal fees, which the Agent or such Lender (as the case may be) may incur at any time arising out of or in connection with any failure of such Obligor to make any payment of Foreign Taxes or Covered Taxes when due. (c) In the event that any Obligor is required by applicable law, decree or regulation to deduct or withhold Foreign Taxes or Covered Taxes from any amounts payable on, under or in respect of this Agreement or the Loans, Letters of Credit or Reimbursement Obligations, such Obligor shall promptly pay the Person entitled to such amount such additional amounts as may be required, after the deduction or withholding of Foreign Taxes or Covered Taxes, to enable such Person to received from such - 57 - Obligor, on the due date thereof, an amount equal to the full amount stated to be payable to such Person under this Agreement. (d) Each Obligor shall furnish to the Agent, upon the request of any Lender (through the Agent), together with certified copies for distribution to each Lender requesting the same (identifying the Lenders which have so requested), original official tax receipts in respect of each payment of Foreign Taxes and Covered Taxes required under this Section 5.07, within 30 days after the date such payment is made, and each Obligor shall promptly furnish to the Agent at its request or at the request of any Lender (through the Agent) any other information, documents and receipts that the Agent or such Lender may reasonably require to establish to its satisfaction that full and timely payment has been made of all Foreign Taxes and Covered Taxes required to be paid under this Section 5.07. Section 6. GUARANTEE. 6.01 THE GUARANTEE. Subject to the limitation set forth in Section 6.10 hereof, the Subsidiary Guarantors hereby jointly and severally guarantee to each Lender and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Lenders to, and the Notes held by each Lender of, the Company and all other amounts from time to time owing to the Lenders or the Agent by the Company under this Agreement and under the Notes and by any Obligor under any of the other Basic Documents, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "GUARANTEED OBLIGATIONS"). The Subsidiary Guarantors hereby further jointly and severally agree that if the Company shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 6.02 OBLIGATIONS UNCONDITIONAL. Subject to the limitation set forth in Section 6.10 hereof, the obligations of the Subsidiary Guarantors under Section 6.01 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Company under this Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the - 58 - fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 6.02 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against the Company under this Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 6.03 REINSTATEMENT. The obligations of the Subsidiary Guarantors under this Section 6 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of - 59 - the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 6.04 SUBROGATION. Each Subsidiary Guarantor hereby waives all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under the Bankruptcy Code) or otherwise by-reason of any payment by it pursuant to the provisions of this Section 6 and each Subsidiary Guarantor further agrees with the Company for the benefit of each of its creditors (including, without limitation, each Lender and the Agent) that any such payment by it shall constitute a contribution of capital by such Subsidiary Guarantor to the Company (or an investment in the equity capital of the Company by such Subsidiary Guarantor). 6.05 REMEDIES. The Subsidiary Guarantors jointly and severally agree that, as between the Subsidiary Guarantors and the Lenders, the obligations of the Company under this Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 10 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 10) for purposes of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Company and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of said Section 6.01. 6.06 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Subsidiary Guarantor hereby acknowledges that the guarantee in this Section 6 constitutes an instrument for the payment of money, and consents and agrees that any Lender or the Agent, at its sole option, in the event of a dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. 6.07 CONTINUING GUARANTEE. The guarantee in this Section 6 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. - 60 - 6.08 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the Properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under this Section 6.08 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Section 6 and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section 6.08, (i) "EXCESS FUNDING GUARANTOR" shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all Properties of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all Properties of the Company and all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Company and the Subsidiary Guarantors hereunder) of the Company and all of the Subsidiary Guarantors, all as of the Original Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder subsequent to the Original Closing Date, then for purposes of this Section 6.08 such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary Guarantor as of the Original Closing Date and the aggregate present fair saleable value of the Properties, and the amount of the debts and liabilities, of such Subsidiary Guarantor as of the Original Closing Date shall be deemed to be equal to - 61 - such value and amount on the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. 6.09 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor under Section 6.01 hereof would otherwise, taking into account the provisions of Section 6.08 hereof, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 6.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, any Lender, the Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. 6.10 LIMITATION ON KERNER'S LIABILITY. It is understood and agreed that the sole recourse of the Agent and the Lenders in respect of the obligations of Tri-Star Technologies under this Section 6 shall be to the assets of Tri-Star Technologies and that nothing contained herein shall create any obligation of or right to look to Alexander Kerner or his assets individually for the satisfaction of such obligations. 6.11 LIMITATION ON GUTERMANN'S LIABILITY. It is understood and agreed that the sole recourse of the Agent and the Lenders in respect of the obligations of Unidec under this Section 6 shall be to the assets of Unidec and that nothing contained herein shall create any obligation of or right to look to Silvia Gutermann or her assets individually for the satisfaction of such obligations. Section 7. CONDITIONS PRECEDENT. 7.01 EFFECTIVENESS OF AMENDMENT AND RESTATEMENT. The effectiveness of the amendment and restatement of the Original Credit Agreement provided for by this Agreement is subject to the conditions precedent that the Agent shall have received the following documents, each of which shall be satisfactory to the Agent (and to the extent specified below, to each Lender) in form and substance: (a) CORPORATE DOCUMENTS. Certified copies of the charter and by-laws (or equivalent documents) of each Obligor and of all corporate authority for each Obligor (including, without limitation, board of director resolutions and evidence of the incumbency of officers) with - 62 - respect to the execution, delivery and performance of such of the Basic Documents to which such Obligor is intended to be a party and each other document to be delivered by such Obligor from time to time in connection herewith and the extensions of credit hereunder (and the Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from such Obligor to the contrary). (b) OFFICER'S CERTIFICATE. A certificate of a senior officer of the Company, dated the Closing Date, to the effect set forth in the first sentence of Section 7.02 hereof. (c) BORROWING BASE CERTIFICATE. A Borrowing Base Certificate as of June 30, 1996. (d) OPINION OF COUNSEL TO THE OBLIGORS. An opinion, dated the Closing Date, of Spolin & Silverman, counsel to the Obligors, substantially in the form of Exhibit E hereto and covering such other matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (e) OPINION OF SWISS COUNSEL TO THE OBLIGORS. An opinion, dated the Closing Date, of Bolla Bonzanigo & Associates, special Swiss counsel to the Obligors, substantially in the form of Exhibit F hereto and covering such other matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (f) OPINION OF U.K. COUNSEL TO THE OBLIGORS. An opinion, dated the Closing Date, of Trethowans Solicitors, special U.K. counsel to the Obligors, substantially in the form of Exhibit G hereto and covering such matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (g) NOTES. The Notes, duly completed and executed. (h) AMENDED SECURITY AGREEMENT. The Security Agreement Amendment, duly executed by the Obligors and the Agent, together with appropriate Uniform Commercial Code Financing Statements with respect to the ADS Subsidiary. (i) INSURANCE. In addition, the Company shall have delivered a certificate of the chief financial officer of the Company (a) setting forth the insurance obtained by it - 63 - in accordance with the requirements of Section 9.04 and stating that such insurance is in full force and effect and (b) stating that such insurance, insofar as it relates to the ADS Subsidiary, provides coverage at least as extensive as that described in the "Risk Management Audit for Aerospace Display Systems," dated July 29, 1996, prepared by The James B. Oswald Company. (j) ENVIRONMENTAL SURVEY AND QUESTIONNAIRE. An environmental survey and assessment prepared by a firm of licensed engineers (familiar with the identification of toxic and hazardous substances) in form and substance satisfactory to the Agent, such environmental survey and assessment to be based upon physical on-site inspections by such firm of each of the existing sites and facilities of ADS, as well as an historical review of the uses of such sites and facilities and of the business and operations of ADS (including any former sub-divisions of ADS that have been disposed of prior to the date of such survey and assessment and with respect to which ADS may have retained liability for Environmental Claims). (k) FINANCIAL PROJECTIONS. Projections satisfactory to the Lenders from the chief financial officer of the Company (in form satisfactory to the Agent) reflecting, on a consolidated and consolidating basis, the forecasted financial condition, income and expenses of the Obligors, for the fiscal year ending on December 31, 1996, through and including the fiscal year ending on December 31, 2000 (which projections shall be detailed on a monthly basis through the fiscal year ending on December 31, 1996 and thereafter on an annual basis), after giving effect to the transactions contemplated hereby and the transactions contemplated under the Senior Subordinated Debt Obligations. (l) ADVERSE LITIGATION OR PROCEEDING. Certificates of each Obligor, signed on behalf of each Obligor by a senior officer thereof, to the effect that (and each Lender shall be satisfied in its good faith judgment that) no litigation or proceeding shall exist (or, to such officer's knowledge be threatened) (i) with respect to the transactions contemplated hereby or the transactions contemplated under the ADS Purchase Agreement or (ii) with respect to such Obligor that could have a Material Adverse Effect. (m) ADS PURCHASE. A certified copy of the ADS Purchase Agreement (which shall be in form and substance satisfactory to the Lenders), as executed by the parties thereto, and evidence that all of the conditions to the ADS Purchase Agreement (any such conditions requiring the satisfaction of any person or entity other than the Agent or - 64 - the Lenders to be deemed for this purpose to require the satisfaction of the Agent) have been met or waived with the concurrence of the Lenders. (n) LICENSES, PERMITS AND GOVERNMENTAL APPROVALS. Evidence that all necessary licenses, permits and governmental and third-party approvals in connection with the ADS Purchase have been obtained and remain in full force and effect. (o) DEBT AND EQUITY ISSUANCE AND PROCEEDS. Each of the following: (i) Evidence that the Company shall have received at least $3,000,000 in gross cash proceeds from the issuance of its Series E Preferred Stock; (ii) Certified copies of the Series E Preferred Stock Documentation (which shall be in form and substance satisfactory to the Lenders); (iii) Evidence that the Company shall have received at least $3,000,000 in gross cash proceeds from the issuance of its Convertible Subordinated Notes; (iv) Certified copies of the Convertible Subordinated Note Documentation (which shall be in form and substance satisfactory to the Lenders). (p) ALLARD NON-COMPETE. Certified copies of the Allard Non-Compete Documentation (which shall be in form and substance satisfactory to the Lenders). (q) BORROWING NOTICE. A notice of borrowing from the Company for an amount of $6,000,000 to be used by the Company in connection with the ADS Purchase. (r) OTHER DOCUMENTS. Such other documents as the Agent or any Lender or special New York counsel to ING may reasonably request. The effectiveness of this Agreement is also subject to the payment or delivery by the Company of such fees and other consideration as the Company shall have agreed to pay or deliver to any Lender or an affiliate thereof or the Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Mayer, Brown & Platt, special New York counsel to ING in connection with the negotiation, preparation, execution and delivery of this Agreement and the Notes and the other Basic Documents and the extensions of credit hereunder (to the extent - 65 - that statements for such fees and expenses have been delivered to the Company). 7.02 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT. The obligation of any Lender to make any Loan (including such Lender's initial Loan) or otherwise extend any credit to the Company upon the occasion of each borrowing or other extension of credit hereunder is subject to the further conditions precedent that, both immediately prior to the making of such Loan or other extension of credit and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; (b) the representations and warranties made by the Company in Section 8 hereof, and by each Obligor in each of the other Basic Documents to which it is a party, shall be true and complete on and as of the date of the making of such Loan or other extension of credit with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (c) the aggregate principal amount of the Revolving Credit Loans together with the aggregate amount of all Letter of Credit Liabilities shall not exceed the Borrowing Base reflected on the most recent Borrowing Base Certificate delivered pursuant to Section 9.01(c) hereof; and (d) no event has occurred that could have a Material Adverse Effect and no event has occurred and is continuing that could be reasonably expected to have a material adverse effect on the markets or industries in which the Obligors operate. Each notice of borrowing or request for the issuance of a Letter of Credit by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding sentence (both as of the date of such notice or request and, unless the Company otherwise notifies the Agent prior to the date of such borrowing or issuance, as of the date of such borrowing or issuance). Section 8. REPRESENTATIONS AND WARRANTIES. Each Obligor represents and warrants to the Agent and the Lenders that: 8.01 CORPORATE EXISTENCE. Each Obligor: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could (either individually or in the aggregate) have a Material Adverse Effect. - 66 - 8.02 FINANCIAL CONDITION. The Company has heretofore furnished to each of the Lenders consolidated and consolidating balance sheets of the Company and its Subsidiaries as at December 31, 1993 and the related consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for the fiscal year ended on said date, with the opinion thereon (in the case of said consolidated balance sheet and statements) of Price Waterhouse L.L.P., and the unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as at August 31, 1994 and the related consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for the eight-month period ended on such date. All such financial statements are complete and correct and fairly present the consolidated financial condition of the Company and its Subsidiaries, and (in the case of said consolidating financial statements) the respective unconsolidated financial condition of the Company and its Subsidiaries, as at said dates and the consolidated and unconsolidated results of their operations for the fiscal year and eight-month period ended on said dates (subject, in the case of such financial statements as at August 31, 1993, to normal year-end audit adjustments), all in accordance with generally accepted accounting principles and practices applied on a consistent basis. Neither the Company nor any of its Subsidiaries has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said dates. Since December 31, 1993, there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Subsidiaries from that set forth in said financial statements as at said date. 8.03 LITIGATION. Schedule I hereto sets forth a complete and correct list, as of the date of this Agreement, of all legal, arbitral, government and regulatory proceedings, as well as pending (to the knowledge of the Company) or threatened (to the knowledge of the Company) proceedings against each of the Obligors. There are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, pending or (to the knowledge of the Company) threatened against any of the Obligors that, if adversely determined could (either individually or in the aggregate) have a Material Adverse Effect. 8.04 NO BREACH. None of the execution and delivery of this Agreement and the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any - 67 - consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which any Obligor is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of the Obligors pursuant to the terms of any such agreement or instrument. 8.05 ACTION. Each Obligor has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is a party have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by each Obligor and constitutes, and each of the Notes and the other Basic Documents to which it is a party when executed and delivered by such Obligor (in the case of the Notes, for value) will constitute, its legal, valid and binding obligation, enforceable against each Obligor in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8.06 APPROVALS. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by any Obligor of the Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 8.07 USE OF CREDIT. No Obligor is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. 8.08 ERISA. Each Plan, and, to the knowledge of the Company, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, - 68 - the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Company would be under an obligation to furnish a report to the Lenders under Section 9.01(g) hereof. 8.09 TAXES. Except for Tri-Star Technologies, Unidec and Hollingsead International Limited, the Obligors are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Company is the "common parent" (within the meaning of Section 1504 of the Code) of such group. There is a tax sharing agreement currently in effect (a true and correct copy of which has heretofore been furnished to the Agent) providing for the manner in which tax payments owing by the members of such affiliated group (whether in respect of Federal or state income or other taxes) are allocated among the members of the group. The Obligors have filed (either directly, or indirectly through the Company) all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid (either directly, or indirectly through the Company) all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any other Obligor. The charges, accruals and reserves on the books of the Obligors in respect of taxes and other governmental charges are, in the opinion of the Obligors, adequate. The Company has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions. 8.10 INVESTMENT COMPANY ACT. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 8.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 8.12 MATERIAL AGREEMENTS AND LIENS. (a) Part A of Schedule II hereto is a complete and correct list, as of the date of this Agreement, of each material credit agreement, loan agreement, indenture, purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, any Obligor, and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule II. - 69 - (b) Part B of Schedule II hereto is a complete and correct list, as of the date of this Agreement, of each Lien securing Indebtedness of any Person and covering any Property of any Obligor, and the aggregate Indebtedness secured (or that may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule II. 8.13 ENVIRONMENTAL MATTERS. Each Obligor has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each Obligor is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not (either individually or in the aggregate) have a Material Adverse Effect. In addition, except as set forth in Schedule III hereto: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity with respect to any alleged failure by any Obligor to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Company or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials generated by the Company or any of its Subsidiaries. (b) None of the Obligors owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) no polychlorinated biphenyls (PCB's) is or has been present at any site or facility now or previously owned, operated or leased by any Obligor; - 70 - (ii) no asbestos or asbestos-containing materials is or has been present at any site or facility now or previously owned, operated or leased by any Obligor; (iii) there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility now or previously owned, operated or leased by any Obligor; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by any Obligor in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials have been otherwise Released at, on or under any site or facility now or previously owned, operated or leased by any Obligor, in each case, that would (either individually or in the aggregate) have a Material Adverse Effect. (c) None of the Obligors has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to Environmental Claims against any Obligor. (d) No Hazardous Material generated by any Obligor has been recycled, treated, stored, disposed of or Released by any Obligor at any location other than those listed in Schedule III hereto. (e) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of any Obligor and no site or facility now or previously owned, operated or leased by any Obligor is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (f) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by any Obligor, and no government action has been - 71 - taken or is in process that could subject any such site or facility to such Liens and none of the Obligors would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (g) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of any Obligor in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by any Obligor and that could result in a Material Adverse Effect have been made available to the Lenders. 8.14 CAPITALIZATION. The authorized capital stock of the Company, and the ownership thereof, as of the date hereof, is correctly described on Schedule V hereto. As of the date hereof, (x) except for the warrants and options described on said Schedule V, there are no outstanding Equity Rights with respect to the Company and (y) there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company nor are there any outstanding obligations of the Company or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of the Company or any of its Subsidiaries. 8.15 SUBSIDIARIES, ETC. (a) Set forth in Part A of Schedule IV hereto is a complete and correct list, as of the date hereof, of all of the Subsidiaries of the Company, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary and (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Part A of Schedule IV hereto, (x) each of the Company and its Subsidiaries owns, free and clear of Liens (other than Liens created pursuant to the Security Documents), and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule IV hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. (b) Set forth in Part B of Schedule IV hereto is a complete and correct list, as of the date of this Agreement, of - 72 - all Investments (other than Investments disclosed in Part A of said Schedule IV hereto) held by the Company or any of its Subsidiaries in any Person and, for each such Investment, (x) the identity of the Person or Persons holding such Investment and (y) the nature of such Investment. Except as disclosed in Part B of Schedule IV hereto, each of the Company and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. 8.16 TITLE TO ASSETS. Each Obligor owns and has on the date hereof, and will own and have on the Closing Date, good and marketable title (subject only to Liens permitted by Section 9.06 hereof) to the Properties shown to be owned in the most recent financial statements referred to in Section 8.02 hereof (other than Properties disposed of in the ordinary course of business or otherwise permitted to be disposed of pursuant to Section 9.05 hereof). Each Obligor owns and has on the date hereof, and will own and have on the Closing Date, good and marketable title to, and enjoys on the date hereof, and will enjoy on the Closing Date, peaceful and undisturbed possession of, all Properties (subject only to Liens permitted by Section 9.06 hereof) that are necessary for the operation and conduct of its businesses. 8.17 TRUE AND COMPLETE DISCLOSURE. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Obligors to the Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Basic Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by any Obligor to the Agent and the Lenders in connection with this Agreement and the other Basic Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Company that could have a Material Adverse Effect that has not been disclosed herein, in the other Basic Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lenders for use in connection with the transactions contemplated hereby or thereby. 8.18 LEGAL FORM. This Agreement and each other Basic Document is in proper legal form under the laws of the United Kingdom and Switzerland, as the case may be, for the enforcement - 73 - against any Obligor subject to the jurisdiction of such law, and if this Agreement and each other Basic Document were stated to be governed by such law, they would constitute legal, valid and binding obligations of such Obligor under such law, enforceable in accordance with their respective terms. All formalities required in the United Kingdom and Switzerland, as the case may be, for the validity and enforceability of this Agreement and each other Basic Document (including, without limitation, any necessary registration, recording or filing with any court or other authority in the United Kingdom and Switzerland) have been accomplished (except that any amendment to the Security Agreement must be registered under the U.K. Companies Act 1985 within 21 days after the Closing Date), and no Foreign Taxes are required to be paid and no notarization is required, for the validity and enforceability thereof. Section 9. COVENANTS OF THE COMPANY. The relevant Obligor (as specified below) covenants and agrees with the Lenders and the Agent that, so long as any Commitment, Loan or Letter of Credit Liability is outstanding and until payment in full of all amounts payable by the Company hereunder: 9.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver to each of the Lenders: (a) within 30 days prior to the end of each fiscal year, but no earlier than 60 days prior to the end of such fiscal year, a budget (on a monthly basis) for the Company and its Subsidiaries for the following fiscal year, substantially in the form of Exhibit H-1 hereto (including consolidating and consolidated statements of income, cash flow and balance sheets prepared in accordance with GAAP); and promptly after any material revision to any such budget, such budget as so revised; (b) as soon as available and in any event within 30 days after the end of each month, consolidated and consolidating statements of income and cash flow of the Company and its Subsidiaries for such period and for the fiscal year to date, setting forth in comparative form the corresponding consolidated and consolidating figures provided in the budget required under Section 9.01(a) hereof for such period, and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such period, in each case substantially in the form of Exhibit H-2 hereto, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries, and said consolidating - 74 - financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (c) as soon as available and in any event within 150 days after the fiscal year ending on December 31, 1994 and within 90 days after the end of each fiscal year of the Company thereafter, consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such fiscal year and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding fiscal year, and accompanied (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not have any Impermissible Qualification and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of a senior financial officer of the Company, which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; (d) as soon as available and in any event within 30 days after the end of each Quarterly Date, analyses of the chief financial officer of the Company as to (x) the financial condition of the Company and its Subsidiaries, on a consolidated and consolidating basis, as of such Quarterly Date, and (y) sales to the Obligors' ten largest customers for the month ending on such Quarterly Date and for the period from the beginning of the fiscal year (of which such Quarterly Date is a part) to such Quarterly Date, in each case, as compared the Obligors' sales to such customers for - 75 - the corresponding time period in the immediately preceding fiscal year (for Quarterly Dates after December 31, 1995) and as compared to the projects set forth in the budget required under Section 9.01(a) hereof. (e) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, that the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (f) promptly upon the mailing thereof to the shareholders of the Company generally or to any holder of Senior Subordinated Debt or any holder of any other Indebtedness of any Obligor, copies of all financial statements, annual reports and proxy statements so mailed; and, promptly upon the receipt thereof, a copy of each other report submitted to any Obligor by independent accountants in connection with any annual, interim or special audit of the books of any Obligor made by such accountants, or any management letters or similar document submitted to any Obligor by such accountants; (g) as soon as possible, and in any event within ten days after any Obligor knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of any Obligor setting forth details respecting such event or condition and the action, if any, that any Obligor or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by any Obligor or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (PROVIDED that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; - 76 - (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by any Obligor or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by any Obligor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by any Obligor or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by any Obligor or any ERISA Affiliate of notice from a 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 of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against any Obligor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if any Obligor or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (h) as soon as available and in any event within fifteen Business Days after the end of each monthly accounting period (ending on the last day of each calendar month), a Borrowing Base Certificate as at the last day of such accounting period; PROVIDED, HOWEVER, that (x) for any monthly accounting period ending prior to June 30, 1995, a Borrowing Base Certificate shall be delivered as soon as available and in any event within twenty Business Days after the end of such monthly accounting period and (y) the Company may furnish Borrowing Base Certificates with more frequency than required by this Section 9.01(h); (i) periodically (but in any event no less frequently than once a year) at the request of the Agent or the - 77 - Majority Lenders, a report of the Collateral Auditor (at the expense of the Company (as provided below)) with respect to the Receivables and Inventory components included in the Borrowing Base as at the end of any monthly accounting period which report shall indicate that, based upon a review by such auditors of the Receivables (including, without limitation, verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of the Obligors) and Inventory (including, without limitation, verification as to the value, location and respective types), the information set forth in the Borrowing Base Certificate delivered by the Company as at the end of such accounting period is accurate and complete in all material respects; (j) promptly after the Company knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken or proposes to take with respect thereto; (k) from time to time such other information regarding the financial condition, operations, business or prospects of any Obligor (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Agent may reasonably request; and (1) within 45 Business Days after the end of each fiscal quarter, a certificate of a senior financial officer of the Company substantially in the form of Exhibit H-3 hereto (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Section 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16 and 9.17 hereof as of the end of the respective monthly period or fiscal year. The Company shall pay to the Collateral Auditor monthly in advance a monthly fee of $1,500, and shall promptly reimburse the Collateral Auditor for out-of-pocket expenses (including, without limitation, reasonable travel expenses (including airfare at coach rates)) incurred in connection with the collateral audits performed pursuant to paragraph (i) of this Section 9.01. - 78 - 9.02 LITIGATION. The Company will promptly give to each Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting any Obligor, except proceedings that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company will give to each Lender notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, any Obligor and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. 9.03 EXISTENCE, ETC. Each Obligor will: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (PROVIDED that nothing in this Section 9.03 shall prohibit any transaction expressly permitted under Section 9.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could (either individually or in the aggregate) have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with GAAP; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied; and - 79 - (f) upon reasonable notice to the Company, permit representatives of any Lender or the Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent requested by such Lender or the Agent (as the case may be). 9.04 INSURANCE. Each Obligor will maintain insurance with financially sound and reputable insurance companies, and with respect to Property and risks of a character usually maintained by corporations engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such corporations. The Obligors will in any event maintain: (1) CASUALTY INSURANCE -- insurance against loss or damage covering all of the tangible real and personal Property and improvements of the Obligors by reason of any Peril (as defined below), other than earthquakes and floods, in such amounts (subject to such deductibles as shall be satisfactory to the Majority Lenders) as shall be reasonable and customary and sufficient to avoid the insured named therein from becoming a co-insurer of any loss under such policy but in any event in an amount (i) in the case of fixed assets and equipment (including, without limitation, vehicles), at least equal to 100% of the actual replacement cost of such assets (including, without limitation, foundation, footings and excavation costs), subject to deductibles as aforesaid and (ii) in the case of inventory, not less than the fair market value thereof, subject to deductibles as aforesaid. (2) AUTOMOBILE LIABILITY INSURANCE FOR BODILY INJURY AND PROPERTY DAMAGE -- insurance against liability for bodily injury and property damage in respect of all vehicles (whether owned, hired or rented any Obligor) at any time located at, or used in connection with, its Properties or operations in such amounts as are then customary for vehicles used in connection with similar Properties and businesses, but in any event to the extent required by applicable law. (3) COMPREHENSIVE GENERAL LIABILITY INSURANCE -- insurance against claims for bodily injury, death or Property damage occurring on, in or about the Properties (and adjoining streets, sidewalks and waterways) of any Obligor, in such amounts as are then customary for Property similar in use in the jurisdictions where such Properties are located. - 80 - (4) WORKERS' COMPENSATION INSURANCE -- workers' compensation insurance (including, without limitation, Employers' Liability Insurance) to the extent required by applicable law. (5) PRODUCT LIABILITY INSURANCE -- insurance against claims for bodily injury, death or Property damage resulting from the use of products sold by any Obligor in such amounts as are then customarily maintained by responsible persons engaged in businesses similar to that of the Company and such Obligor. (6) BUSINESS INTERRUPTION INSURANCE -- insurance against loss of operating income (up to an aggregate amount equal to the greater of (x) $15,000,000 and (y) for the period commencing after January 1, 1995, the sum of the following for the fiscal year of the Company most recently ended: "the aggregate sales of the Obligors, LESS the aggregate cost of sales of the Obligors, PLUS the aggregate payroll expense of the Obligors) by reason of any Peril (other than earthquakes and floods). (7) EARTHQUAKE INSURANCE -- insurance against loss in respect of any earthquake or any flood in an aggregate amount equal to $10,000,000 for the period commencing after March 31, 1995. (8) KEY MAN INSURANCE -- insurance in the amount of $2,000,000 in respect of the life of Mr. R. Jack DeCrane. (9) OTHER INSURANCE -- such other insurance, including, without limitation, War-Risk Insurance when and to the extent obtainable from the United States Government, in each case as generally carried by owners of similar Properties in the jurisdictions where such Properties are located, in such amounts and against such risks as are then customary for Property similar in use. Such insurance shall be written by financially responsible companies selected by the Obligors and having an A. M. Best rating of "A-" or better and being in a financial size category of VII or larger, or by other companies acceptable to the Majority Lenders, and (other than workers' compensation) shall name the Agent as loss payee (to the extent covering risk of loss or damage to tangible property) and as an additional named insured as its interests may appear (to the extent covering any other risk). Each policy referred to in this Section 9.04 shall provide that it will not be canceled or reduced, or allowed to lapse without renewal, except after not less than 30 days' notice to the Agent and shall also provide that the interests of the Agent and the Lenders shall not be invalidated by any act or - 81 - negligence of any Obligor or any Person having an interest in any Property covered by such policy nor by occupancy or use of any such Property for purposes more hazardous than permitted by such policy nor by any foreclosure or other proceedings relating to such Property. The Company will advise the Agent promptly of any policy cancellation, reduction or amendment. Within 15 days after the Original Closing Date the Company will deliver to the Agent certificates of insurance satisfactory to the Agent evidencing the existence of all insurance required to be maintained by the Obligors hereunder setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage and showing that such insurance will remain in effect through the December 31 falling at least six months after the date hereof, subject only to the payment of premiums as they become due (and attaching original copies of any policies with respect to casualty insurance). Thereafter, on each November 15 in each year (commencing with the first November 15 after the date hereof), the Obligors will deliver to the Agent certificates of insurance evidencing that all insurance required to be maintained by the Company hereunder will be in effect through the December 31 of the calendar year following the calendar year of the current November 15, subject only to the payment of premiums as they become due. In addition, the Company will not modify any of the provisions of any policy with respect to casualty insurance without delivering the original copy of the endorsement reflecting such modification to the Agent accompanied by a written report of The James B. Oswald Company, or any other firm of independent insurance brokers of nationally recognized standing, stating that, in their opinion, such policy (as so modified) adequately protects the interests of the Lenders and the Agent, is in compliance with the provisions of this Section 9.04, and is comparable in all respects with insurance carried by responsible owners and operators of Properties similar to those owned or leased by the Obligors. None of the Obligors will obtain or carry separate insurance concurrent in form or contributing in the event of loss with that required by this Section 9.04 unless the Agent is the named insured thereunder, with loss payable as provided herein. Any Obligor will immediately notify the Agent whenever any such separate insurance is obtained and shall deliver to the Agent the certificates evidencing the same. Without limiting the obligations of any Obligor under the foregoing provisions of this Section 9.04, in the event the Company shall fail to maintain in full force and effect insurance as required by the foregoing provisions of this Section 9.04, then the Agent may, but shall have no obligation so to do, procure insurance covering the interests of the Lenders and the Agent in such amounts and against such risks as the Agent (or the - 82 - Majority Lenders) shall deem appropriate, and the Company shall reimburse the Agent in respect of any premiums paid by the Agent in respect thereof. For purposes hereof, the term "PERIL" shall mean, collectively, fire, lightning, flood, windstorm, hail, earthquake, explosion, riot and civil commotion, vandalism and malicious mischief, damage from aircraft, vehicles and smoke and all other perils covered by the "all-risk" endorsement then in use in the jurisdictions where the Properties of the Company and its Subsidiaries are located. 9.05 PROHIBITION OF FUNDAMENTAL CHANGES. No Obligor will enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), except that each of the Obligors may reincorporate in the State of Delaware. No Obligor will, without the prior consent of the Agent (with the approval of the Majority Lenders), acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of inventory and other Property to be sold or used in the ordinary course of business, Investments permitted under Section 9.08 hereof, and Capital Expenditures permitted under Section 9.15 hereof. No Obligor will convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, any part of its business or Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests, but excluding (i) obsolete or worn-out Property, tools or equipment no longer used or useful in its business so long as the aggregate amount thereof sold in any single fiscal year by Obligors shall not have a fair market value in excess of $200,000 and (ii) any inventory or other Property sold or disposed of in the ordinary course of business and on ordinary business terms). 9.06 LIMITATION ON LIENS. No Obligor will, or will permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property (excluding any Property owned by a customer but in the possession of the Obligor or its Subsidiary), whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents; (b) Liens in existence on the date hereof and listed in Part B of Schedule II hereto (excluding, however, following the making of the initial Loans hereunder, Liens securing Indebtedness to be repaid with the proceeds of such Loans, as indicated on said Schedule II, but including any continuation of any existing Liens on Property of Unidec - 83 - securing any refinancing of the Indebtedness of Unidec identified in Part A of Schedule II hereto); (c) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or the affected Subsidiaries, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default under Section 10(h) hereof; (e) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (f) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto that, in the aggregate, are not material in amount, and that do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of any Obligor; and (h) Liens upon real and/or tangible personal Property acquired after the date hereof (by purchase, construction or otherwise) by any Obligor, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; PROVIDED that (i) no such Lien shall extend to or cover any Property of any Obligor, other than the Property so acquired and improvements thereon and (ii) the principal amount of Indebtedness secured by any such Lien - 84 - shall at no time exceed 80% of the fair market value (as determined in good faith by a senior financial officer of the relevant Obligor) of such Property at the time it was acquired (by purchase, construction or otherwise). 9.07 INDEBTEDNESS. No Obligor will create, incur or suffer to exist any Indebtedness except: (a) Indebtedness to the Lenders hereunder; (b) Indebtedness outstanding on the date hereof and listed in Part A of Schedule II hereto (excluding, however, following the making of the initial Loans hereunder, the Indebtedness to be repaid with the proceeds of such Loans, as indicated on said Schedule II, but including any refinancing of the Indebtedness of Unidec listed in such Part so long as the principal amount thereof is not increased); (c) the Senior Subordinated Debt; (d) Indebtedness arising under the Convertible Subordinated Notes; (e) Indebtedness arising under the Allard Non-Compete Documentation; (f) Indebtedness of Subsidiaries of the Company to the Company or to other Subsidiaries of the Company; and (g) Indebtedness, in an aggregate amount not to exceed $600,000, consisting of obligations to Gamberg under the Restrictive Covenant Agreement referred to in the Cory Purchase Agreement; (h) additional Indebtedness of the Company and its Subsidiaries up to but not exceeding $1,000,000 at any one time outstanding. 9.08 INVESTMENTS. No Obligor will make or permit to remain outstanding any Investments except: (a) Investments outstanding on the date hereof and identified in Part B of Schedule IV hereto; (b) operating deposit accounts with the Cash Management Agent and other banks; (c) Permitted Investments; - 85 - (d) Investments by the Company and its Subsidiaries in capital stock of Subsidiaries of the Company to the extent outstanding on the date of the financial statements of the Company and its Subsidiaries referred to in Section 8.02 hereof and advances by the Company and its Subsidiaries to Subsidiaries of the Company in the ordinary course of business, PROVIDED that the aggregate amount of advances to be made to Tri-Star Technologies at any one time outstanding shall not exceed $250,000; and (e) Interest Rate Protection Agreements and Commodity Price Protection Agreements entered into by the Company pursuant to Section 9.18 hereof. 9.09 DIVIDEND PAYMENTS. No Obligor will declare or make any Dividend Payment at any time. Cory will not declare or make any dividend payment in respect of its capital stock unless such dividend payment is made ratably to Cory's shareholders. Tri-Star Technologies will not make any distribution to its partners unless such distribution is made in accordance with its partnership agreement. 9.10 LEVERAGE RATIO. The Obligors will not permit the Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From September 30, 1996 through December 30, 1996 6.65 to 1 From December 31, 1996 through June 29, 1997 5.90 to 1 From June 30, 1997 through December 30, 1997 3.60 to 1 From December 31, 1997 through June 29, 1998 2.90 to 1 From June 30, 1998 through December 30, 1998 2.75 to 1 From December 31, 1998 and at all times thereafter 2.25 to l. - 86 - 9.11 EBITDA RATIO. The Obligors will not permit the EBITDA Ratio to exceed the following respective amounts at any time during the following respective periods: Period Ratio ------ ----- From September 30, 1996 through December 30, 1996 6.70 to 1 From December 31, 1996 through June 29, 1997 4.90 to 1 From June 30, 1997 through December 30, 1997 2.75 to 1 From December 31, 1997 through June 29, 1998 2.25 to 1 From June 30, 1998 and at all times thereafter 1.75 to 1. 9.12 NET WORTH. The Obligors will not permit the Company's Net Worth to be less than the following respective amounts at any time during the following respective periods: Period Amount ------ ------ From September 30, 1996 through December 30, 1996 $6,936,000 From December 31, 1996 through June 29, 1997 $7,845,000 From June 30, 1997 through December 30, 1997 $11,500,000 From December 31, 1997 through June 29, 1998 $14,250,000 From June 30, 1998 through December 30, 1998 $17,500,000 From December 31, 1998 and at all times thereafter $20,000,000. 9.13 CURRENT RATIO. The Obligors will not permit the ratio of current assets of the Obligors to current liabilities of the Obligors to be less than 1.25 to 1 at any time. For purposes hereof, the terms "CURRENT ASSETS" and "CURRENT LIABILITIES" - 87 - shall have the respective meanings assigned to them by GAAP, PROVIDED that in any event there shall be included in current liabilities the outstanding amount of Revolving Credit Loans and there shall be excluded from current liabilities the current portion of long-term debt and amounts outstanding under the Convertible Subordinated Note. 9.14 FIXED CHARGES RATIO. The Obligors will not permit the Fixed Charges Ratio to be less than the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From September 30, 1996 through December 30, 1996 0.75 to 1 From December 31, 1996 through June 29, 1997 0.95 to 1 From June 30, 1997 through December 30, 1997 1.15 to 1 From December 31, 1997 and at all times thereafter 1.40 to 1. 9.15 CAPITAL EXPENDITURES. The Obligors will not permit the aggregate amount of Capital Expenditures (other than the ADS Purchase) by the Obligors to exceed the following respective amounts for the following respective periods: Period Amount ------ ------ From January 1, 1996 through December 31, 1996 $2,000,000 For each fiscal year of the Company thereafter AMOUNT $2,500,000. - 88 - 9.16 INTEREST COVERAGE RATIO; SELLING. GENERAL AND ADMINISTRATIVE EXPENSE RATIO. (a) The Obligors will not permit the Interest Coverage Ratio to be less than the following amounts at any time during the following respective periods: Period Ratio ------ ----- From September 30, 1996 through December 30, 1996 1.25 to 1 From December 31, 1996 through June 29, 1997 1.50 to 1 From June 30, 1997 through December 30, 1997 2.00 to 1 From December 31, 1997 through June 29, 1998 2.50 to 1 From June 30, 1998 and at all times thereafter 3.00 to l. (b) The Obligors will not permit the Selling, General and Administrative Expense Ratio to less than the following amounts at any time during the following respective periods: Period Ratio ------ ----- From September 30, 1996 through December 30, 1996 0.187 to 1 From December 31, 1996 through December 30, 1997 0.185 to 1 From December 31, 1997 and at all times thereafter 0.180 to 1 9.17 ACCOUNTS PAYABLE RATIO. The Obligors will not permit the Accounts Payable Ratio to be greater than the following respective amounts at any time during the following respective periods: Period Ratio ------ ----- From September 30, 1996 and at all times thereafter 60.0 to 1. - 89 - 9.18 INTEREST RATE AND COMMODITY PRICE PROTECTION AGREEMENTS. The Company will within 60 days of the Original Closing Date and at all times thereafter maintain in full force and effect one or more Interest Rate Protection Agreements with one or more of the Lenders (and/or with a bank or other financial institution having capital, surplus and undivided profits of at least $500,000,000), that effectively enables the Company (in a manner satisfactory to the Majority Lenders), as at any date, to protect itself against interest rate risk for a period of at least five years (and for no longer than seven years) and for an amount (which may be an amortizing amount) of at least $10,000,000 (and for no more than $15,000,000). The Company will, by no later than ten Business Days after the Original Closing Date and at all time thereafter to and including December 31, 1996, maintain in full force and effect one or more Commodity Price Protection Agreements with ING (or an affiliate thereof) that effectively enables the Company (in a manner satisfactory to the Majority Lenders), as at any date, to protect itself against the Swiss franc exposure of Unidec for an amount of at least Sfr 585,000 per month. For each day after such tenth day on which the Company shall not have entered into such Commodity Price Protection Agreements, the Company shall pay to the Agent, for account of the Lenders, a fee equal to $500, payable on demand. 9.19 SUBORDINATED INDEBTEDNESS: ALLARD NON-COMPETE. (a) Neither the Company nor any of its Subsidiaries will purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Senior Subordinated Debt or Indebtedness in respect of the Convertible Subordinated Note, except (in the case of Senior Subordinated Debt) for regularly scheduled payments of principal and interest in respect thereof required pursuant to the instruments evidencing such Senior Subordinated Debt. (b) None of the Obligors will make any payment in respect of the Allard Non-Compete during any period during which any amount payable by any Obligor hereunder or under any other Basic Document shall remain due and unpaid. 9.20 LINES OF BUSINESS. Neither the Company nor any of its Subsidiaries will engage to any substantial extent in any line or lines of business activity other than the business of manufacturing, distributing and selling aircraft components, avionics integrated systems and related products. 9.21 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this Agreement, no Obligor will directly - 90 - or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, Guarantees and assumptions of obligations of an Affiliate); PROVIDED that (i) any Affiliate who is an individual may serve as a director, officer or employee of any Obligor and receive reasonable compensation for his or her services in such capacity, (ii) the Company, Cory and Cory Holdings may make payments or distributions to Gamberg pursuant to the Gamberg Documents, (iii) Cory may pay any Indebtedness owing to any Obligor, (iv) Tri-Star Technologies may make payments required under the TST Partnership Agreement and the Kerner Employment Agreement, (v) any non-Wholly-Owned Subsidiary of an Obligor may make transfers or payments to such Obligor; and (vi) any Obligor may enter into transactions (other than extensions of credit by any Obligor to an Affiliate) providing for the leasing of Property, the rendering or receipt of services or the purchase or sale of inventory and other Property in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Obligors as the monetary or business consideration that would obtain in a comparable transaction with a Person not an Affiliate. 9.22 USE OF PROCEEDS. The Company will use the proceeds of the Loans hereunder solely to finance the ADS Purchase and to finance the working capital and general corporate purposes of the Obligors (in compliance with all applicable legal and regulatory requirements); PROVIDED that neither the Agent nor any Lender shall have any responsibility as to the use of any of such proceeds. 9.23 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES. Each Obligor will take such action from time to time as shall be necessary to ensure that such Obligor at all times owns (subject only to the Lien of the Security Agreement) at least the same percentage of the issued and outstanding shares of each class of stock of each of its Subsidiaries as is owned on the date hereof. In the event that any such additional shares of stock shall be issued by any Subsidiary, the respective Obligor agrees forthwith to deliver to the Agent pursuant to the Security Agreement the certificates evidencing such shares of stock, accompanied by undated stock powers executed in blank and to take such other action as the Agent shall request to perfect the security interest created therein pursuant to the Security Agreement. No Obligor will permit any of its Subsidiaries to enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or - 91 - imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property. 9.24 MODIFICATIONS OF CERTAIN DOCUMENTS. No Obligor will, without the prior consent of the Agent (with the approval of the Majority Lenders), consent to any material modification, supplement or waiver of (a) its constitutional or organizational documents or (b) the provisions of (i) any agreement, instrument or other document evidencing or relating to (A) Senior Subordinated Debt, (B) the Cory Repurchase, (C) the 1996 (February) Warrants or Section 7 of the 1996 (February) Securities Purchase Agreement or (D) the 1996 (September) Warrants, the Convertible Subordinated Notes or Section 7 of the 1996 (September) Securities Purchase Agreement, or (ii) any agreement relating to employee compensation or similar arrangements. To the extent that the Company is permitted to withhold its consent to any transfer of any interest in the Senior Subordinated Debt, the Company shall not grant such consent without the prior consent of the Majority Lenders (but in no event shall the Majority Lenders require that the Company withhold its consent to any such transfer if the Company is not permitted under the Senior Subordinated Debt Documents to so withhold its consent). 9.25 VENDOR PAYABLES. The Obligors shall not permit the aggregate amount of payables owed by them to trade vendors on December 31, 1994 to exceed $6,800,000. 9.26 GOVERNMENTAL APPROVALS. Each Obligor shall promptly obtain, at its own expense, all governmental licenses, authorizations, consents, permits and approvals as may be required for such Obligor to (a) comply with its obligations and preserve its rights under, each Basic Document and (b) maintain the existence, priority and perfection of the Liens created under the Security Documents. 9.27 SWISS RECEIVABLES. If at any time the Indebtedness of Unidec identified on Schedule II hereto, and any refinancing thereof, shall have been repaid in full and all commitments in respect thereof shall have been terminated or cancelled, the Obligors shall cause to be delivered to the Agent such agreements or other instruments, and take such other actions, to provide that the Agent shall have for the benefit of the Lenders a first priority perfected security interest in all receivables owing or to be owing to Unidec. 9.28 INTERCOMPANY NOTE. Cory agrees to perform all of its obligations under the Intercompany Note and, so long as any - 92 - Commitment, Loan or Letter of Credit Liability is outstanding and until payment in full of all amounts payable by the Company hereunder, to make all payments under the Intercompany Note directly to the Agent for application to the payment of principal and/or interest in respect of the Loans. 9.29 ADS FINANCIAL STATEMENTS. The Company shall deliver to each of the Lenders, as soon as available and in any event no later than October 15, 1996, statements of income and cash flow of ADS for each of the respective fiscal years ending on December 31, 1994 and December 31, 1995, and the related balance sheets of ADS as at the end of such fiscal year, in each case substantially in the form and substance of the financial statements of ADS heretofore presented by the Company to the Lenders, and accompanied (i) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not have any Impermissible Qualification and shall state that said financial statements fairly present the financial condition and results of operations of ADS as at the end of, and for, such period in accordance with generally accepted accounting principles, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default, and (ii) by a certificate of a senior financial officer of the Company, which certificate shall state that said consolidated financial statements fairly present the financial condition and results of operations of ADS, in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period. 9.30 DEAL COSTS. The Company will not permit the aggregate amount of Deal Costs to exceed $1,000,000, and shall only pay those Deal Costs disclosed in writing by the Company to the Agent prior to the date hereof. Section 10. EVENTS OF DEFAULT. If one or more of the following events (herein called "EVENTS OF DEFAULT") shall occur and be continuing: (a) The Company shall: (i) default in the payment of any principal of any Loan or any Reimbursement Obligation when due (whether at stated maturity or at mandatory or optional prepayment); or (ii) default in the payment of any interest on any Loan, any fee or any other amount payable by it hereunder or under any other Basic Document when due and such default shall have continued unremedied for one or more Business Days; or (b) Any Obligor shall default in the payment when due of any principal of or interest on any of its other - 93 - Indebtedness, or in the payment when due of any amount under any Interest Rate Protection Agreement or Commodity Price Protection Agreement; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any Interest Rate Protection Agreement or Commodity Price Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or, in the case of an Interest Rate Protection Agreement or Commodity Price Protection Agreement, to permit the payments owing under such Interest Rate Protection Agreement or Commodity Price Protection Agreement (as the case may be) to be liquidated; or (c) Any representation, warranty or certification made or deemed made herein or in any other Basic Document (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Lender or the Agent pursuant to the provisions hereof or thereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Company shall default in the performance of any of its obligations under any of Sections 9.01(h), 9.01(j), 9.05, 9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12, 9.13, 9.14, 9.16, 9.17, 9.18, 9.19 or 9.21 hereof, or any Obligor shall default in the performance of any of its obligations under Section 4.2 or 5.2 of the Security Agreement; or any Obligor shall default in the performance of any of its other obligations in this Agreement or any other Basic Document and such default shall continue unremedied for a period of fifteen or more Business Days after notice thereof (specifying such default and setting forth, if applicable, calculations showing such default) to the Company and any Significant Holder (as defined in the 1994 Securities Purchase Agreement) by the Agent or any Lender (through the Agent); or (e) Any Obligor shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) Any Obligor shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a - 94 - general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the affected Obligor, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of such Obligor or of all or any substantial part of its Property, or (iii) similar relief in respect of such Obligor under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against any Obligor shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $100,000 in the aggregate shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against any Obligor and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and such Obligor shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed or fully bonded, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 9.01(g) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, any Obligor or any ERISA Affiliate shall incur or in the opinion of the Majority Lenders shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) that, in the determination of the Majority - 95 - Lenders, would (either individually or in the aggregate) have a Material Adverse Effect; or (j) A reasonable basis shall exist for the assertion against any Obligor, or any predecessor in interest of any Obligor or Affiliates, of (or there shall have been asserted against any Obligor) an Environmental Claim that, in the judgment of the Majority Lenders is reasonably likely to be determined adversely to any Obligor, and the amount thereof (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (insofar as such amount is payable by any Obligor but after deducting any portion thereof that is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor); or (k) R. Jack DeCrane shall (i) cease to have the power to direct the management and policies of the Company and a replacement acceptable to the Majority Lenders shall not have assumed R. Jack DeCrane's duties within fifteen days thereafter, (ii) cease to own or control 4% of the Company's capital stock (on a fully-diluted basis), or (iii) shall die or be unable to perform his duties as a senior executive of the Company and a replacement acceptable to the Majority Lenders shall not have assumed R. Jack DeCrane's duties within 90 days after such death or disability; or (l) The Liens created by the Security Documents shall at any time not constitute a valid and perfected Lien on the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Agent, free and clear of all other Liens (other than Liens permitted under Section 9.06 hereof or under the respective Security Documents), or, except for expiration in accordance with its terms, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Obligor; or (m) An event or condition of the type described in Section 10(e), (f) or (g) hereof shall occur or exist with respect to Boeing or Claircom or (if the aggregate value of the Obligors' backlog of orders that relate to IFT constitute at least 20% of the aggregate value of all of the Obligors' backlog of orders) IFT; or - 96 - (n) The Obligors' business relationship with Boeing or Claircom shall be modified in a manner that is reasonably likely to have a Material Adverse Effect or shall terminate; or (o) Any license, consent, authorization, registration or approval at any time necessary to enable any Obligor to comply with any of its obligations under this Agreement or any other Basic Document shall be revoked, withdrawn or withheld or shall be modified or amended in a manner materially prejudicial, in the opinion of the Majority Lenders, to the interests of the Lenders hereunder; THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 10, (A) the Agent may and, upon request of the Majority Lenders shall, by notice to the Company, terminate the Commitments and they shall thereupon terminate, and (B) the Agent may and, upon request by the Majority Lenders shall, by notice to the Company declare the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 10 with respect to any Obligor, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor. In addition, upon the occurrence and during the continuance of any Event of Default (if the Agent has declared the principal amount then outstanding of, and accrued interest on, the Revolving Credit Loans and all other amounts payable by the Company hereunder and under the Notes to be due and payable), the Company agrees that it shall, if requested by the Agent or the Majority Lenders through the Agent (and, in the case of any Event of Default referred to in clause (f) or (g) of this Section 10 with respect to the Company, forthwith, without any demand or the taking of any other action by the Agent or such Lenders) provide cover for the Letter of Credit Liabilities by paying to the Agent immediately available funds in an amount - 97 - equal to the then aggregate undrawn face amount of all Letters of Credit, which funds shall be held by the Agent in the Collateral Account as collateral security in the first instance for the Letter of Credit Liabilities and be subject to withdrawal only as therein provided. Section 11. THE AGENT. 11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes each of the Agent and the Cash Management Agent to act as its agent hereunder and under the other Basic Documents with such powers as are specifically delegated to the Agent and the Cash Management Agent, respectively, by the terms of this Agreement and of the other Basic Documents, together with such other powers as are reasonably incidental thereto. Each of the Agent and the Cash Management Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 hereof shall include reference to its Affiliates and its own and its Affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Basic Documents, and shall not by reason of this Agreement or any other Basic Document be a trustee for any Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Basic Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Basic Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other Basic Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Basic Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Basic Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Agent (to the extent provided in Section 12.06(b) hereof). - 98 - 11.02 RELIANCE BY AGENT. Each of the Agent and the Cash Management Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent and the Cash Management Agent, respectively. As to any matters not expressly provided for by this Agreement or any other Basic Document, the Agent and the Cash Management Agent, respectively, shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 11.03 DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Agent has received notice from a Lender or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 11.07 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders, PROVIDED that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Majority Lenders or all of the Lenders. 11.04 RIGHTS AS A LENDER. With respect to its Commitments and the Loans made by it, ING (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. ING (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Obligors (and any of their Subsidiaries or Affiliates) as if it were not acting as the Agent, and ING and its Affiliates may accept fees and other consideration from the Obligors for - 99 - services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 11.05 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 12.03 hereof, but without limiting the obligations of the Company under said Section 12.03, and including in any event any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement to which remittances in respect of Accounts, as defined therein, are to be made) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Basic Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Company is obligated to pay under Section 12.03 hereof, and including also any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement to which remittances in respect of Accounts, as defined therein, are to be made, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Obligors and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or under any other Basic Document. The Agent shall not be required to keep itself informed as to the performance or observance by any Obligor of this Agreement or any of the other Basic Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of any Obligor. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or under the Security Documents, the Agent shall not have any duty - 100 - or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Obligors (or any of their Affiliates) that may come into the possession of the Agent or any of its affiliates. 11.07 FAILURE TO ACT. Except for action expressly required of the Agent hereunder and under the other Basic Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 11.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Agent may be removed at any time with or without cause by the Majority Lenders (and, during any period during which there are only two Lenders and a court of competent jurisdiction shall have determined that the Agent shall have acted hereunder with gross negligence of wilful misconduct, the Lender that is not acting as Agent (the "Other Lender") shall have the right to remove the Agent). Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent (or, if the Agent is removed by the Other Lender as above provided, the Other Lender shall have the right to appoint a successor Agent). If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, that shall be a bank that has an office in New York, New York. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. The Agent may at any time assign all of its rights and obligations hereunder to any affiliate of the Agent by notice to the Company and each Lender. 11.09 AGENCY FEE; CASH MANAGEMENT FEE. Until payment in full of the principal of and interest on the Loans and all other amounts payable by the Company hereunder and termination of the Commitments hereunder, - 101 - (a) the Company will pay to the Agent an agency fee of $75,000 per annum, which shall accrue on the first Business Day of each fiscal year of the Company (commencing on the first Business Day of 1996) and shall be payable quarterly in arrears on the last Business Day of each fiscal quarter (commencing on the Business Day immediately preceding March 31, 1996), and (b) the Company will pay to the Cash Management Agent a cash management fee of $25,000 per annum, which shall accrue on the first Business Day of each fiscal year of the Company (commencing on the first Business Day of 1996) and shall be payable quarterly in arrears on the last Business Day of each fiscal quarter (commencing on the Business Day immediately preceding March 31, 1996); PROVIDED that, upon payment in full of the principal of and interest on the Loans and the termination o the Commitments hereunder, accrued but unpaid amounts under this Section 11.09 shall automatically become due and payable. 11.10 CONSENTS UNDER OTHER BASIC DOCUMENTS. Except as otherwise provided in Section 12.04 hereof with respect to this Agreement, the Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Basic Documents, PROVIDED that, without the prior consent of each Lender, the Agent shall not (except as provided herein or in the Security Documents) release any collateral or otherwise terminate any Lien under any Basic Document providing for collateral security, or agree to additional obligations being secured by such collateral security, except that no such consent shall be required, and the Agent is hereby authorized, to release any Lien covering Property that is the subject of a disposition of Property permitted hereunder or to which the Majority Lenders have consented. 11.11 COLLATERAL SUB-AGENTS. Each Lender by its execution and delivery of this Agreement agrees, as contemplated by Section 4.3 of the Security Agreement, that, in the event it shall hold any Permitted Investments referred to therein, such Permitted Investments shall be held in the name and under the control of such Lender, and such Lender shall hold such Permitted Investments as a collateral sub-agent for the Agent thereunder. The Company by its execution and delivery of this Agreement hereby consents to the foregoing. In addition, the Cash Management Agent shall hold the Zero Balance Account and any cash or investments therein as a collateral sub-agent for the Agent thereunder. - 102 - 11.12 RESIGNATION OF CASH COLLATERAL AGENT; ETC.. The Cash Management Agent may resign at any time by at least 30 days notice to the Agent and the Company, whereupon the Cash Management Agent shall have no further obligations hereunder and all provisions herein providing for payments to be made to the Cash Management Agent shall be deemed to have been amended to provide for payments to be made to an account designated by the Agent. All obligations of the Cash Management Agent under the Cash Management Agreement shall automatically terminate upon the termination of the Commitments or the acceleration of the maturity of the Loans pursuant to Section 10 hereof. Section 12. MISCELLANEOUS. 12.01 WAIVER. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Each Obligor irrevocably waives, to the fullest extent permitted by applicable law, any claim that any action or proceeding commenced by the Agent or any Lender relating in any way to this Agreement should be dismissed or stayed by reason, or pending the resolution, of any action or proceeding commenced by any Obligor relating in any way to this Agreement whether or not commenced earlier. To the fullest extent permitted by applicable law, the Obligors shall take all measures necessary for any such action or proceeding commenced by the Agent or any Lender to proceed to judgment prior to the entry of judgment in any such action or proceeding commenced by any Obligor. 12.02 NOTICES. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy), or, with respect to notices given pursuant to Section 2.03 hereof, by telephone, confirmed in writing by telecopier by the close of business on the day the notice is given, delivered (or telephoned, as the case may be) to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Any communication required to be delivered to a Significant Holder (as that term is defined in the - 103 - 1994 Securities Purchase Agreement) shall be given at the address for the Purchasers referred to therein, specified in Section 17J of the 1994 Securities Purchase Agreement (or such other address as shall be designated by such Purchasers in a notice to the Agent). Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier (with confirmation) or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.03 EXPENSES, ETC. The Company agrees to pay or reimburse each of the Lenders and the Agent for: (a) all reasonable out-of-pocket costs and expenses of each Lander (including, without limitation, the reasonable fees and expenses of Mayer, Brown & Platt, special New York counsel to ING) in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents and the extension of credit hereunder and (ii) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Basic Documents (whether or not consummated); (b) all reasonable out-of-pocket costs and expenses of the Lenders and the Agent (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 12.03; and (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Basic Document or any other document referred to therein. The Company hereby agrees to indemnify the Agent and each Lender and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, liabilities, claims, damages or expenses incurred by the Agent to any Lender, whether or not the Agent or any Lender is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) - 104 - relating to the extensions of credit hereunder or any actual or proposed use by Obligors of the proceeds of any of the extensions of credit hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the person to be indemnified). Without limiting the generality of the foregoing, the Company will (x) indemnify the Agent for any payments that the Agent is required to make under any indemnity issued to any bank referred to in Section 4.02 of the Security Agreement to which remittances in respect to Accounts, as defined therein, are to be made and (y) indemnify the Agent and each Lender from, and hold the Agent and each Lender harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Obligors (or any predecessor in interest to the Obligors), or the past, present or future condition of any site or facility owned, operated or leased at any time by the Company or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials at or from any such site or facility, including any such Release or threatened Release that shall occur during any period when the Agent or any Lender shall be in possession of any such site or facility following the exercise by the Agent or any Lender of any of its rights and remedies hereunder or under any of the Security Documents. 12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Company, the Agent and the Majority Lenders, or by the Company and the Agent acting with the consent of the Majority Lenders, and any provision of this Agreement may be waived by the Majority Lenders or by the Agent acting with the consent of the Majority Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless by an instrument signed by all of the Lenders or by the Agent acting with the consent of all of the Lenders: (i) increase, or extend the term of any of the Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Commitments, (ii) extend the date fixed for the payment of principal of or interest on any Loan, the Reimbursement Obligations or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the rights or obligations of the Company to prepay Loans, (vi) alter the terms of this - 105 - Section 12.04, (vii) modify the definition of the term "Majority Lenders" or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, or (viii) waive any of the conditions precedent set forth in Section 7.01 hereof; (b) any modification or supplement of Section 11 hereof shall require the consent of the Agent; and (c) any modification or supplement of Section 6 hereof shall require the consent of each Subsidiary Guarantor. 12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06 ASSIGNMENTS AND PARTICIPATIONS. (a) No Obligor may assign any of its rights or obligations hereunder or under the Notes without the prior consent of all of the Lenders and the Agent. (b) Each Lender may assign any of its Loans, its Notes, its Commitments, and its Letter of Credit Interest (but only with the consent of the Agent and, in the case of the Revolving Credit Commitment or a Letter of Credit Interest, the Issuing Bank); PROVIDED that (i) no such consent by the Company shall be required in the case of any assignment to another Lender; (ii) any such partial assignment shall be in an amount at least equal to $2,500,000; and (iii) each such assignment by a Lender shall be made in such manner so that the same portion of its Revolving Credit Loans and Revolving Credit Commitment is assigned to the respective assignee. Upon execution and delivery by the assignee to the Company, the Agent and the Issuing Bank of an instrument in writing pursuant to which such assignee agrees to become a "Lender" hereunder (if not already a Lender) having the Commitment(s), Loans, and, if applicable, Letter of Credit Interest specified in such instrument, and upon consent thereto by the Agent and the Issuing Bank, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Company, the Agent and the Issuing Bank), the obligations, rights and benefits of a Lender hereunder holding the Commitment(s), Loans and, if applicable, Letter of Credit Interest (or portions thereof) assigned to it (in addition to the Commitment(s), Loans and Letter of Credit Interest, if any, theretofore held by such assignee) and the assigning Lender shall, to the extent of such assignment, be released from the Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment the assigning Lender shall pay the Agent an assignment fee of $3,000. (c) A Lender may sell or agree to sell to one or more other Persons a participation in all or any part of any Loans or - 106 - Letter of Credit Interest held by it, or in its Commitments, in which event each purchaser of a participation (a "PARTICIPANT") shall be entitled to the rights and benefits of the provisions of Section 9.01(k) hereof with respect to its participation in such Loans, Letter of Credit Interest and Commitments as if (and the Company shall be directly obligated to such Participant under such provisions as if) such Participant were a "Lender" for purposes of said Section, but, except as otherwise provided in Section 4.07(c) hereof, shall not have any other rights or benefits under this Agreement or any Note or any other Basic Document (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to any Lender under Section 5 hereof in respect of Loans, Letter of Credit Interest held by it, and its Commitments, shall be determined as if such Lender had not sold or agreed to sell any participations in such Loans, Letter of Credit Interest and Commitments, and as if such Lender were funding each of such Loan, Letter of Credit Interest and Commitments in the same way that it is funding the portion of such Loan, Letter of Credit Interest and Commitments in which no participations have been sold. In no event shall a Lender that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Basic Document except that such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of such Lender's related Commitment, (ii) extend the date fixed for the payment of principal of or interest on the related Loan or Loans, Reimbursement Obligations or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, (v) alter the rights or obligations of the Company to prepay the related Loans or (vi) consent to any modification, supplement or waiver hereof or of any of the other Basic Documents to the extent that the same, under Section 11.10 or 12.04 hereof, requires the consent of each Lender. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.06, any Lender may (without notice to the Company, the Agent or any other Lender and without payment of any fee) (i) assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank and (ii) assign all or any portion of its rights under this Agreement and its Loans and its Notes to an Affiliate. - 107 - No such assignment shall release the assigning Lender from its obligations hereunder. (e) A Lender may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 12.12(b) hereof. (f) Anything in this Section 12.06 to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan or Reimbursement Obligation held by it hereunder to the Company or any of its Affiliates or Subsidiaries without the prior consent of each Lender. 12.07 SURVIVAL. The obligations of the Company under Sections 5.01, 5.05, 5.06 and 12.03 hereof, the obligations of each Subsidiary Guarantor under Section 6.03 hereof, and the obligations of the Lenders under Section 11.05 hereof, shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of a Loan or a Letter of Credit), herein or pursuant hereto shall survive the making of such representation and warranty. 12.08 CAPTIONS. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.09 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) This Agreement (including, without limitation, Section 6 hereof as it applies to Unidec) and the Notes shall be governed by, and construed in accordance with, the internal laws of the State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Obligor irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any - 108 - claim that any such proceeding brought in such a court has been brought in an inconvenient forum. (b) Each Obligor hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in the State of New York may be made upon CT Corporation (the "PROCESS AGENT"), presently located at 1633 Broadway, New York, New York 10019, and each Obligor hereby represents and agrees that the Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney-in-fact in its name, place and stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the Process Agent to give any notice of such service of process to any Obligor shall not impair or affect the validity of-such service or of any judgment based thereon. Each Obligor hereby further irrevocably consents to the service of process in any suit, action or proceeding by the mailing thereof by the Agent or any Lender by registered or certified mail, postage prepaid, at its address set forth beneath its signature hereto. (c) Nothing herein shall in any way be deemed to limit the ability of the Agent or any Lender to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over any Obligor in such other jurisdictions, and in such manner, as may be permitted by applicable law. 12.11 WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OP OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.12 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. (a) The Obligors acknowledge that from time to time financial advisory, investment banking and other services may be offered or provided to the Obligors (in connection with this Agreement or otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such Lender and each of the Obligors hereby authorizes each Lender to share any information delivered to such Lender by the Obligors pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, with any such Subsidiary or Affiliate, it being understood that any such Subsidiary or Affiliate receiving such information shall be bound by the provisions of clause (b) below as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. - 109 - (b) Each Lender and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by any Obligor pursuant to this Agreement that is identified by such Person as being confidential at the time the same is delivered to the Lenders or the Agent, PROVIDED that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Lenders or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or any other Lender, (v) in connection with any litigation to which any one or more of the Lenders or the Agent is a party, (vi) to a Subsidiary or Affiliate of such Lender as provided in clause (a) above or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender a Confidentiality Agreement substantially in the form of Exhibit I hereto. In no event shall any Lender or the Agent be obligated or required to return any materials furnished by any Obligor. In addition, the obligations of any assignee that has executed a Confidentiality Agreement in the form of Exhibit I hereto shall be superseded by this Section 12.12 upon the date upon which such assignee becomes a Lender hereunder pursuant to Section 12.06 hereof. 12.13 JUDGMENT CURRENCY. The specification of Dollars and payment in the United States is of the essence, and the obligations of any Obligor under this Agreement and the other Basic Documents to make payment to (or for the account of) a Lender in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any other currency or in another place except to the extent that such tender or recovery results in the effective receipt by such Lender in the United States of the full amount of Dollars payable to such Lender under this Agreement. If for the purpose of obtaining judgment in any court it is necessary to covert a sum due hereunder in Dollars into another currency (the "JUDGMENT CURRENCY"), the rate of exchange which shall be applied shall be that at which in accordance with market practices the Agent could purchase such Dollars in New York City with the judgment currency on the Business Day following the day on which such judgment is rendered. The obligation of the Obligors in respect of any sum due from it to the Agent or any Lender hereunder or under any Basic Document (any "ENTITLED PERSON") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any - 110 - sum adjudged to be due hereunder in the judgment currency such Entitled Person may in accordance with market practices purchase and transfer Dollars to New York City in the amount of the judgment currency so adjudged to be due; and each of the Obligors hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in Dollars, the amount (if any) by which the sum originally due to such Entitled Person in Dollars hereunder exceeds the amount of Dollars so purchased and transferred. - 111 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By /s/ R. Jack DeCrane --------------------------------- Title: Address for Notices: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue Suite 210 Copley, Ohio 44321 Attention: Mr. R. Jack DeCrane Chief Executive Officer Telecopier No.: (330) 668-2518 Telephone No.: (330) 668-3061 - 112 - SUBSIDIARY GUARANTORS ADS ACQUISITION, INC. By /s/ R. Jack DeCrane ---------------------------- Title: TRI-STAR HOLDINGS, INC. By /s/ R. Jack DeCrane ----------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By /s/ R. Jack DeCrane ----------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By /s/ R. Jack DeCrane ----------------------------- Title: TRI-STAR TECHNOLOGIES By Tri Star Technologies, Inc., as as general partner By /s/ R. Jack DeCrane ----------------------------- Title: TRI-STAR ELECTRONICS EUROPE S.A., MEZZOVICO By ----------------------------- Title: CORY HOLDINGS, INC. By /s/ R. Jack DeCrane ----------------------------- Title: - 113 - SUBSIDIARY GUARANTORS ADS ACQUISITION, INC. By ---------------------------- Title: TRI-STAR HOLDINGS, INC. By ----------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By ----------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By ----------------------------- Title: TRI-STAR TECHNOLOGIES By Tri Star Technologies, Inc., as as general partner By ----------------------------- Title: TRI-STAR ELECTRONICS EUROPE S.A., MEZZOVICO By /s/ [ILLEGIBLE] ----------------------------- Title: CORY HOLDINGS, INC. By ----------------------------- Title: - 113 - CORY COMPONENTS, INC. By /s/ R. Jack DeCrane ----------------------------- Title: HOLLINGSEAD INTERNATIONAL, INC. By /s/ R. Jack DeCrane ----------------------------- Title: HOLLINGSEAD INTERNATIONAL LIMITED By /s/ R. Jack DeCrane ----------------------------- Title: - 114 - LENDERS ------- Revolving Credit Commitment INTERNATIONALE NEDERLANDEN (U.S) - --------------------------- CAPITAL CORPORATION $9,375,000 Term Loan Commitment - -------------------- $11,250,000 By /s/ David Balistrery -------------------------- Title: Senior Associate Lending Office for all Loans: Internationale Nederlanden (U.S.) Capital Corporation 135 East 57th Street New York, New York 10021 Address for Notices: Internationale Nederlanden (U.S.) Capital Corporation 135 East 57th Street New York, New York 10021 Attention: Corporate Finance Group Telecopier No.: (212) 593-3362 Telephone No.: (212) 409-1955 - 115 - Revolving Credit Commitment THE PROVIDENT BANK - ---------------------------- $3,125,000 Term Loan Commitment - -------------------- $3,750,000 By [ILLEGIBLE] ----------------------------- Title: VP Lending Office for all Loans: The Provident Bank One East Fourth Street Cincinnati, Ohio 45202 Address for Notices: The Provident Bank One East Fourth Street Cincinnati, Ohio 45202 Attention: Nick Jevic Corporate Banking Telecopier No.: (513) 579-2858 Telephone No.: (513) 579-2385 - 116 - INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Agent By /s/ David Balistrey ------------------------------ Title: SENIOR ASSOCIATE Address for Notices to ING as Agent: Internationale Nederlanden (U.S.) Capital Corporation 135 East 57th Street New York, New York 10021 Attention: Corporate Finance Group Telecopier No.: (212) 593-3362 Telephone No.: (212) 409-1955 - 117 - [EXECUTION COPY] AMENDMENT NO. 1 AMENDMENT NO. 1, dated as of September 18, 1996, between DeCRANE AIRCRAFT HOLDINGS, INC., a corporation duly organized and validly existing under the laws of the State of Ohio (the "COMPANY"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (collectively, the "SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation, as agent for the Lenders named in the Amended and Restated Credit Agreement referred to below (in such capacity, together with its successors in such capacity, the "AGENT"). The Company, certain of the Subsidiary Guarantors, the Lenders, the Cash Management Agent identified therein and the Agent entered into a Credit Agreement, dated as of November 2, 1994 (the "CREDIT AGREEMENT"), providing, subject to the terms and conditions thereof, for extensions of credit (by making loans and issuing letters of credit) to be made by said Lenders to the Company. In order to induce the Lenders to enter into the Credit Agreement, the Company, the Subsidiary Guarantors identified therein and the Agent entered into a Security Agreement, dated as of November 2, 1994 (the "SECURITY AGREEMENT"), providing for the pledge and grant of a security interest in certain collateral as security for the obligations of the Obligors under the Credit Agreement. The Obligors, the Lenders, the Cash Management Agent identified therein and the Agent entered into an Amended and Restated Credit Agreement, dated as of September 18, 1996 (the "AMENDED AND RESTATED CREDIT AGREEMENT"), amending and restating the Credit Agreement for the purpose of providing, subject to the terms and conditions thereof, additional credit to the Company to finance certain capital expenditures, the operations of the Company and for other purposes. To induce the Lenders to enter into the Amended and Restated Credit Agreement and for other good and valuable consideration, the Company, the Subsidiary Guarantors party to the Security Agreement and the Agent wish to modify the Security Agreement to, among other things, include ADS Acquisition, Inc. as a party to the Security Agreement. Accordingly, the parties hereto hereby agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Amended and Restated Credit Agreement are used herein as defined therein. Section 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Security Agreement shall be amended as follows: 2.01 AMENDED AND RESTATED CREDIT AGREEMENT. Each reference to the Credit Agreement in the Security Agreement shall be a reference to the Amended and Restated Credit Agreement. 2.02 ADS. ADS Acquisition, Inc. shall be included as a "Subsidiary Guarantor" and "Obligor" under the Security Agreement, with all of the rights and obligations of a Subsidiary Guarantor thereunder. Section 3. REPRESENTATIONS AND WARRANTIES. Each of the Obligors represents and warrants to the Lenders that the representations and warranties set forth in Section 2 of the Security Agreement are true and complete on the date hereof, as if made on and as of the date hereof (or, if such representation warranty is expressly stated to have been made as of a specific date, as of such specific date), and as if each reference in said Section 2 to "this Agreement" included reference to this Amendment. Section 4. CONDITIONS PRECEDENT. As provided in Section 2 above, the amendment to the Security Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the execution and delivery of this Amendment by the Obligors and the Agent. Section 5. MISCELLANEOUS. Except as herein provided, the Security Agreement shall remain unchanged and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By /s/ R. Jack DeCrane --------------------------------- Title: -3- SUBSIDIARY GUARANTORS TRI-STAR HOLDINGS, INC. By /s/ R. Jack DeCrane -------------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By /s/ R. Jack DeCrane -------------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By /s/ R. Jack DeCrane -------------------------------- Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as as general partner By /s/ R. Jack DeCrane -------------------------------- Title: TRI-STAR ELECTRONICS EUROPE S.A., MEZZOVICO By -------------------------------- Title: CORY HOLDINGS, INC. By /s/ R. Jack DeCrane -------------------------------- Title: -4- SUBSIDIARY GUARANTORS TRI-STAR HOLDINGS, INC. By -------------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By -------------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By -------------------------------- Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as as general partner By -------------------------------- Title: TRI-STAR ELECTRONICS EUROPE S.A., MEZZOVICO By /s/ [ILLEGIBLE] -------------------------------- Title: CORY HOLDINGS, INC. By -------------------------------- Title: -4- CORY COMPONENTS, INC. By /s/ R. Jack DeCrane -------------------------------- Title: HOLLINGSEAD INTERNATIONAL, INC. By /s/ R. Jack DeCrane -------------------------------- Title: HOLLINGSEAD INTERNATIONAL LIMITED By /s/ R. Jack DeCrane -------------------------------- Title: ADS ACQUISITION, INC. By /s/ R. Jack DeCrane -------------------------------- Title AGENT INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Agent By /s/ [ILLEGIBLE] -------------------------------- Title: Senior Associate -5- MB&P Draft of December 11, 1996 AMENDMENT NO. 2 AMENDMENT NO. 2, dated as of December 12, 1996, between DeCRANE AIRCRAFT HOLDINGS INC., a corporation duly organized and validly existing under the laws of the State of Ohio (the "COMPANY"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (collectively, the "SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto or that pursuant to Section 12.06(b) of the Credit Agreement (defined below), shall become a "Lender" under the Credit Agreement (collectively, the LENDERS"); THE PROVIDENT BANK, an Ohio banking corporation, as Cash Management Agent (in such capacity, together with its successors in such capacity, the "CASH MANAGEMENT AGENT"); and ING (U.S.) CAPITAL CORPORATION, a Delaware corporation, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). The Obligors, the Lenders, the Cash Management Agent and the Agent are parties to an amended and restated Credit Agreement, dated as of September 18, 1996 (as heretofore amended, the "CREDIT AGREEMENT"), providing, subject to the terms and conditions thereof, for extensions of credit (by making loans and issuing letters of credit) to be made by said Lenders to the Company in an aggregate principal or face amount not exceeding $27,500,000. The Obligors, the Lenders, the Cash Management Agent and the Agent wish to increase the aggregate amount of the Revolving Credit Commitments under the Credit Agreement from $12,500,000 to $15,750,000, to make additional Term Loans in an aggregate amount equal to $5,000,000 and to modify the Credit Agreement in certain other respects and accordingly, the parties hereto hereby agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein as defined therein. Section 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent specified in Section 5 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: 2.01 AMP ACQUISITION. (a) The following defined terms shall be added to Section 1.01 of the Credit Agreement (Definitions) in their respective appropriate alphabetical locations: ""AMP" shall mean AMP Incorporated, a corporation duly organized and validly existing under the laws of the Commonwealth of Pennsylvania." ""AMP ACQUISITION" shall mean the acquisition by the Company of (i) all of the assets of AMP related to its Qualitronix manufacturing activities and (ii) certain specific proprietary rights and intellectual property of Whitaker, in each case pursuant to the AMP Purchase Agreement." ""AMP PURCHASE AGREEMENT" shall mean the Asset Purchase and Sale Agreement, dated as of November 25, 1996, among the Company, AMP and Whitaker." ""SUPPLY CONTRACTS" shall have the meaning given to that term in the AMP Purchase Agreement." ""WHITAKER" shall mean The Whitaker Corporation, a corporation duly organized and validly existing under the laws of the State of Delaware." (b) Section 9.05 of the Credit Agreement (Prohibition of Fundamental Changes) shall be amended by deleting the word "and" in the second sentence thereof, and by adding the following at the end of such sentence: "and the AMP Acquisition" (c) Section 9.22 of the Credit Agreement (Use of Proceeds) shall be amended by adding the following at the end thereof: ", and FURTHER PROVIDED that the proceeds of Loans made on the date that the AMP Acquisition is consummated shall be used solely to make payments due under the AMP Purchase Agreement, and to pay related fees and expenses." (d) Section 9.24 of the Credit Agreement (Modification of Certain Documents) shall be amended by adding the following at the end of the first sentence thereof: ", or (iii) either of the Supply Contracts" (e) Annex 6 to the Security Agreement (Locations) shall be amended in its entirety to read as Annex 6 hereto. 2.02 INCREASE IN REVOLVING CREDIT COMMITMENTS. The definition of "Revolving Credit Commitment" in Section 1.01 of the Credit Agreement shall be amended in its entirety to read as follows: ""REVOLVING CREDIT COMMITMENT" shall mean, as to each Lender, the obligation of such Lender to make Revolving Credit Loans in an aggregate amount at any one time outstanding up to but not exceeding the amount set opposite the name of such Lender on the signature pages of Amendment No. 2 hereto under the caption "Revolving Credit Commitment" (as the same may reduced from time to time pursuant to Section 2.04 hereof)." 2.03 ADDITIONAL TERM LOANS (a) The Following shall be added immediately following the first sentence of Section 2.01(b) of the Credit Agreement (Commitment to Make Term Loans): "In addition, each Lender severally agrees, on the terms and conditions of this Agreement, to make a term loan to the Company in Dollars on the date on which the AMP Acquisition is consummated in a principal amount equal to (a) in the case of ING, $3,750,000 and (b) in the case of Provident, $1,250,000." (b) Section 3.01(b) of the Credit Agreement (Amortization of Term Loans) shall be amended in its entirety to read as follows: - 2 - "(b) The Company hereby promises to pay to the Agent for account of each Lender the principal of such Lender's Term Loans in 20 installments payable on the Principal Payment Dates as follows: PRINCIPAL PAYMENT DATE AMOUNT OF INSTALLMENT ($) December 31, 1996 $375,000 March 31, 1997 468,750 June 30, 1997 468,750 September 30, 1997 468,750 December 31, 1997 468,750 March 31, 1998 875,000 June 30, 1998 875,000 September 30, 1998 875,000 December 31, 1998 875,000 March 31, 1999 968,750 June 30, 1999 968,750 September 30, 1999 968,750 December 31, 1999 968,750 March 31, 2000 968,750 June 30, 2000 968,750 September 30, 2000 968,750 December 31, 2000 968,750 March 31, 2001 968,750 June 30, 2001 968,750 September 30, 2001 1,937,500" 2.04 COVENANT MODIFICATIONS. [To be provided] Section 3. FEES. (a) On the date that this Amendment No. 2 shall become effective, the Company agrees to pay to the Agent, for the benefit of the Lenders, a fee in an amount equal to $250,000. (b) Effective as of the date hereof, the following new Section 2.12 shall be added to the Credit Agreement: "9.22 SEMI-ANNUAL FEES. Until the payment in full of all obligations of the Company hereunder and the termination or expiration of the Commitments, the Company shall pay to the Agent, for account of the Lenders, a fee in an amount equal to the Semi-annual Fee Amount, payable on each May 15 and November 15 in each year, commencing with May 15, 1997. For purposes hereof, the 'SEMI-ANNUAL FEE AMOUNT' shall mean, with respect to any payment of a fee pursuant to this Section 9.22 , the sum of $67,000 PLUS the aggregate amount of all fees theretofore required to have been made (E.G., the payment due on November 15, 1997 will be calculated as follows: $67,00 PLUS $67,000 (the payment required to have been made on May 15, 1997) EQUALS $134,000)." - 3 - (c) Notwithstanding that the increase of the Revolving Credit Commitments contemplated by Section 2 hereof shall not become effective until the satisfaction of the conditions precedent specified in Section 6 hereof, for purposes of calculating the amount of commitment fee payable under Section 2.05 of the Credit Agreement, the Revolving Credit Commitments of the Lenders shall be deemed to have been so increased immediately upon the execution of this Amendment by each of the Lenders. Section 4. REPRESENTATIONS AND WARRANTIES. Each of the Obligors represents and warrants to the Lenders that (i) the representations and warranties set forth in Section 8 of the Credit Agreement are true and complete on the date hereof, as if made on and as of the date hereof ( or, if such representation warranty is expressly stated to have been made as of a specific date, as of such specific date), and as if each reference in said Section 8 to "this Agreement" included reference to this Amendment No. 2 and (ii) after giving effect to this Amendment No. 2, no Default shall have occurred and be continuing. Section 5. CONDITIONS PRECEDENT. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, subject to the satisfaction of the following conditions: 5.01 EXECUTION. This Amendment No. 2 shall have been duly executed and delivered by the Company, the Subsidiary Guarantors, the Agent and each of the Lenders. 5.02 NOTES. The Company shall have delivered to the Agent for each Lender, in exchange for the Notes heretofore delivered to such Lender pursuant to Section 2.08 of the Credit Agreement, new Notes, date the date of the Notes being exchanged, payable to such Lender in a principal amount equal to its Revolving Credit Commitment (as increased hereby) and the aggregate amount of its Term Loans (as increased hereby), respectively, and otherwise duly completed. 5.03 AMP PURCHASE AGREEMENT. The Agent shall have received a copy of the AMP Purchase Agreement, together with all documents and agreements relating thereto (including, without limitation, the Supply Contracts), each in form and substance satisfactory to the Agent. 5.04 UCCs. Appropriate Uniform Commercial Code Financing statements shall have been delivered to the Agent for filing in such jurisdiction as the Agent shall request to perfect the Lien created by the Security Agreement over the Properties acquired by the Company in the AMP Acquisition. 5.05 FEE. The Agent shall have received the fee referred to in Section 3(a) hereof. Section 6. MISCELLANEOUS. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York. - 4 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By_____________________________ Title: SUBSIDIARY GUARANTORS TRI-STAR HOLDING, INC. By_____________________________ Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By_____________________________ Title: TRI-STAR TECHNOLOGIES, INC. By_____________________________ Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as as general partner By_____________________________ Title: UNIDEC, S.A. By_____________________________ Title: - 5 - CORY HOLDINGS, INC. By_____________________________ Title: CORY COMPONENTS, INC. By_____________________________ Title: HOLLINGSEAD INTERNATIONAL, INC. By_____________________________ Title: HOLLINGSEAD INTERNATIONAL LIMITED By_____________________________ Title: ELSINORE AEROSPACE SERVICES, INC. By_____________________________ Title: EE ACQUISITIONS, INC. By_____________________________ Title: - 6 - LENDERS Revolving Credit Commitment: ING (U.S.) CAPITAL CORPORATION $11,812,500 By_____________________________ Title: Revolving Credit Commitment: THE PROVIDENT BANK $3,937,500 By_____________________________ Title: ING (U.S.) CAPITAL CORPORATION, as Agent By_____________________________ Title: - 7 - CONSENTS 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 April 9, 1996 relating to the consolidated financial statements of DeCrane Aircraft Holdings, Inc. which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended December 31, 1995 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 such report also included this schedule. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Cleveland, Ohio December , 1996 We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated April 2, 1996 relating to the financial statements of Aerospace Display Systems which appears in such Prospectus. PRICE WATERHOUSE LLP Philadelphia, Pennsylvania December , 1996 EXECUTION COPY AMENDMENT NO. 3 AMENDMENT NO. 3, dated as of February 20, 1996, between DeCRANE AIRCRAFT HOLDINGS, INC., a corporation duly organized and validly existing under the laws of the State of Ohio (the "COMPANY"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (collectively, the "SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto or that, pursuant to Section 12.06(b) of the Credit Agreement (defined below), shall become a "Lender" under the Credit Agreement (collectively, the "LENDERS"); THE PROVIDENT BANK, an Ohio banking corporation, as Cash Management Agent (in such capacity, together with its successors in such capacity, the "CASH MANAGEMENT AGENT"); and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). The Obligors, the Lenders, the Cash Management Agent and the Agent are parties to a Credit Agreement, dated as of November 2, 1994 (as heretofore amended, the "CREDIT AGREEMENT"), providing, subject to the terms and conditions thereof, for extensions of credit (by making loans and issuing letters of credit) to be made by said Lenders to the Company in an aggregate principal or face amount not exceeding $20,000,000. The Obligors, the Lenders and the Agent wish to modify the Credit Agreement and, accordingly, the parties hereto hereby agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein as defined therein. Section 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows, and compliance by the Obligors with certain provisions of the Credit Agreement waived as follows: 2.01 NEW DEFINITIONS. The following defined terms shall be added to Section 1.01 of the Credit Agreement in their respective appropriate alphabetical locations: "'APPLICABLE ANNUALIZATION FACTOR' shall mean: (a) for the fiscal quarter ending on March 31, 1996, 4.0; (b) for the fiscal quarter ending on June 30, 1996, 2.0; and (c) for the fiscal quarter ending on September 30, 1996, 1.33. "'COMMODITY PRICE PROTECTION AGREEMENT' shall mean, for any Person, an exchange-traded or over-the-counter commodity (including, without limitation, foreign exchange) forward, future, option, swap, swaption, cap, collar, floor or similar arrangement to which such Person is a party, providing for the transfer or mitigation of commodity (including foreign exchange) risks either generally or under specific contingencies." "'CORY PURCHASE AGREEMENT' shall mean the Stock Purchase Agreement, dated January 1, 1995, between the Company, Cory and Gamberg." "'CORY REPURCHASE' shall mean the purchase by the Company from Gamberg of 25% of the outstanding capital stock of Cory pursuant to Cory Purchase Agreement." "'NASSAU' shall mean Nassau Capital Partners L.P., a Delaware limited partnership, and NAS Partners I L.L.C., a Delaware limited liability company." "'NASSAU EQUITY INFUSION' shall mean the purchase by Nassau for cash, on or about the date of Amendment No. 3 hereto, of shares of preferred stock of the Company and Nassau Warrants for a purchase price equal to $6,500,000 pursuant to the Nassau Purchase Agreement." "'NASSAU/GAMBERG DEAL COSTS' shall mean all costs and expenses incurred by the Company or any of its Subsidiaries in connection with the transactions contemplated by the Cory Repurchase, the Nassau Equity Infusion and Amendment No. 3 to the Credit Agreement, including (without limitation) the following: (a) fees and expenses paid to the Lenders, the Agent, Nassau, Electra and their respective counsel and (b) investment banking, independent accountant, brokerage, arrangement and commitment fees, commissions and expenses." -2- "'NASSAU PURCHASE AGREEMENT' shall mean the Securities Purchase Agreement dated as of February 20, 1996 among the Company and Nassau." "'NASSAU WARRANTS' shall mean the warrants to be acquired by Nassau, pursuant to the terms of the Nassau Purchase Agreement." "'QUALIFIED PUBLIC OFFERING' shall mean an underwritten public offering of the common stock of the Company registered under the Securities Act of 1933, as amended." "'SENIOR SUBORDINATED DEBT AMENDMENTS' shall mean (i) Amendment No. 1, dated as of February 20, 1996, to the Securities Purchase Agreement among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc and (ii) Amendment No. 1, dated as of February 20, 1996, to the Advisory Agreement among the Company and Electra Inc." 2.02 MODIFIED DEFINITIONS. The following definitions in Section 1.01 of the Credit Agreement shall be amended as follows: (a) The existing definition of "Borrowing Base" shall be changed to be a definition of "GROSS BORROWING BASE" and "Borrowing Base" shall be defined as follows: "'BORROWING BASE' shall mean, as at any date, the lesser of the following: (i) the sum of the Gross Borrowing Base MINUS the aggregate amount payable by the Company on or after such date under the Restrictive Covenant Agreement referred to in the Cory Purchase Agreement, and (ii) the aggregate amount of the Commitments on such date MINUS the aggregate amount payable by the Company on or after such date under the Restrictive Covenant Agreement referred to in the Cory Purchase Agreement." (b) The definition of "EBITDA" is hereby amended by replacing the second parenthetical phrase therein with the following: "(including, without limitation, (x) amortization of intangibles, (y) amortization of Deal Costs (to the extent that such Deals Costs do not exceed $2,500,000) -3- and (z) amortization of Nassau/Gamberg Deal Costs (to the extent that such Nassau/Gamberg Deal Costs do not exceed $600,000) and amortization of legal expenses incurred prior to February 20, 1996, in connection with a derivative action maintained by Gamberg, on behalf of Cory, against the Company and certain Subsidiary Guarantors (to the extent that such legal expenses do not exceed $350,000))" (c) The definition of "EBITDA RATIO" is hereby amended by adding the following proviso immediately prior to the end of such definition: "; PROVIDED that, with respect to any date prior to December 31, 1996, 'EBITDA RATIO' shall mean the ratio of (a) all Indebtedness of the Obligors at such time to (b) the product of (x) EBITDA for the period commencing on January 1, 1996 and ending on the fiscal quarter ending on or most recently ended prior to such date and (y) the Applicable Annualization Factor" (d) The definition of "FIXED CHARGES RATIO" is hereby amended by deleting the parenthetical in clause (a) thereof and adding the following proviso immediately prior to the end of such definition: "PROVIDED that, with respect to any date prior to December 31, 1996, 'FIXED CHARGES RATIO' shall mean the ratio of Cash Flow for the period commencing on January 1, 1996 and ending on the fiscal quarter on or most recently ended prior to such date to Debt Service for such period". (e) The definition of "INTEREST COVERAGE RATIO" is hereby amended by deleting the parenthetical in clause (a) thereof and adding the following proviso immediately prior to the end of such definition: "PROVIDED that, with respect to any date prior to December 31, 1996, 'INTEREST COVERAGE RATIO' shall mean the ratio of Cash Flow for the period commencing on January 1, 1996 and ending on the fiscal quarter ending on or most recently ended prior to such date to Interest Expense that is payable in cash for such period". (f) The definition of "INTEREST EXPENSE" is hereby amended by relettering the existing clause "(b)" thereof as clause "(c)", deleting the word "and" at the end of clause (a) and by adding the following new clause (b): -4- "(b) the aggregate amount payable by the Company pursuant to Section 11.09 hereof (whether or not actually paid) during such period, and". (g) The definition of "NET WORTH" is hereby amended by replacing clause (e) thereof in its entirety with the following: "(e) the value ascribed to the Warrants and the Nassau Warrants and the cumulative effect of any change in the valuation of the Warrants and the Nassau Warrants; PLUS". (h) The definition of "SELLING, GENERAL AND ADMINISTRATIVE EXPENSES RATIO" is hereby amended by adding the following proviso immediately prior to the end of such definition: "PROVIDED that, with respect to any date prior to December 31, 1996, 'SELLING, GENERAL AND ADMINISTRATIVE EXPENSES RATIO' shall mean the ratio of Selling, General and Administrative Expenses for the period commencing on January 1, 1996 and ending on the fiscal quarter ending on or most recently ended prior to such' date to Net Sales for such period". Section 2.03 MANDATORY PREPAYMENTS. (a) The Lenders waive the requirement of Section 2.10(c) of the Credit Agreement that the Company prepay the Loans with the proceeds of the Nassau Equity Infusion. (b) Section 2.10(d) of the Credit Agreement is hereby amended by replacing the reference therein to "60%" with a reference to "70%." (c) Section 2.10(f)(i) of the Credit Agreement is hereby amended in its entirety to read as follows: "(i) first, the amount of the prepayment specified in such clauses shall be applied to the installments of the Term Loans then outstanding in the inverse order of the maturity thereof; and" Section 2.04 LIMITATIONS ON CORY GUARANTEE. The proviso at the end of the first sentence of Section 6.08 of the Credit Agreement and Section 6.10 of the Credit Agreement are hereby deleted. Section 2.05 CORY REPURCHASE. The Lenders waive the provisions of Section 9.05 of the Credit Agreement to the -5- extent necessary to permit the Company to consummate the Cory Repurchase. The Lenders also waive the provisions of Section 9.24(b)(i) with respect to the Senior Subordinated Debt Amendments to the extent necessary to permit the Company to consummate the Cory Repurchase. In addition, Section 9.08(e) of the Credit Agreement is hereby amended in its entirety to read as follows: "(e) Investments in the capital stock of Cory made pursuant to the Cory Purchase Agreement; and". Section 2.06 NON-COMPETE OBLIGATIONS. Section 9.07 of the Credit Agreement is hereby amended by relettering the existing clause "(e)" as clause "(f)," by deleting the word "and" at the end of clause (d) and by adding the following new clause (e): "(e) Indebtedness, in an aggregate amount not to exceed $600,000, consisting of obligations to Gamberg under the Restrictive Covenant Agreement referred to in the Cory Purchase Agreement; and" Section 2.07 LEVERAGE RATIO. The Lenders hereby waive, compliance by the Obligors with the provisions of Section 9.10 of the Credit Agreement on September 30, 1995 and December 31, 1995. In addition, the table in Section 9.10 of the Credit Agreement is hereby amended for all periods prior to March 31, 1997 to read as follows: "PERIOD RATIO ------ ----- From January 1, 1996 through March 30, 1996 11.00 to 1 From March 31, 1996 through June 29, 1996 3.62 to 1 From June 30, 1996 through September 29, 1996 3.47 to 1 From September 30, 1996 through December 30, 1996 3.07 to 1 From December 31, 1996 through March 30, 1997 2.58 to 1" Section 2.08 EBITDA RATIO. The Lenders hereby waive compliance by the Obligors with the provisions of Section 9.11 of the Credit Agreement on September 30, 1995 and on December 31, 1995. In addition, the table in Section 9.11 of the Credit Agreement is hereby amended for all periods -6- after December 31, 1995 and prior to March 31, 1997 to read as follows: "PERIOD RATIO ------ ----- From March 31, 1996 through June 29, 1996 7.15 to 1 From June 30, 1996 through September 29, 1996 4.89 to 1 From September 30, 1996 through December 30, 1996 3.68 to 1 From December 31, 1996 through March 30, 1997 2.97 to 1" Section 2.09 NET WORTH. The Lenders hereby waive compliance by the Obligors with the provisions of Section 9.12 of the Credit Agreement on September 30, 1995 and December 31, 1995. In addition, the table in Section 9.12 of the Credit Agreement is hereby amended for all periods prior to March 31, 1997 to read as follows: "PERIOD AMOUNT ------ ------ From January 1, 1996 through March 30, 1996 $ 3,000,000 From March 31, 1996 through June 29, 1996 $ 9,922,000 From June 30, 1996 through September 29, 1996 $10,284,000 From September 30, 1996 through December 30, 1996 $11,225,000 From December 31, 1996 through March 30, 1997 $12,410,000" Section 2.10 FIXED CHARGES RATIO. The Lenders hereby waive compliance by the Obligors with the provisions of Section 9.14 of the Credit Agreement on December 31, 1995. In addition, the table in Section 9.14 of the Credit Agreement is hereby amended for all periods after December 31, 1995 and prior to March 31, 1997 to read as follows: -7- "PERIOD RATIO ------ ----- From March 31, 1996 through June 29, 1996 0.26 to 1 From June 30, 1996 through September 29, 1996 0.74 to 1 From September 30, 1996 through December 30, 1996 0.99 to 1 From December 31, 1996 through March 30, 1997 1.21 to 1" Section 2.11 INTEREST COVERAGE RATIO. The table in Section 9.16(a) of the Credit Agreement is hereby amended for all periods after December 31, 1995 and prior to March 31, 1997 to read as follows: "PERIOD RATIO ------ ----- From March 31, 1996 through June 29, 1996 0.41 to 1 From June 30, 1996 through September 29, 1996 1.17 to 1 From September 30, 1996 through December 30, 1996 1.61 to 1 From December 31, 1996 through March 30, 1997 2.02 to 1" Section 2.12 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO. The table in Section 9.16(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "PERIOD RATIO ------ ----- From March 31, 1996 through June 29, 1996 0.2114 to 1 From June 30, 1996 through September 29, 1996 0.1907 to 1 From September 30, 1996 through December 30, 1996 0.1810 to 1 From December 31, 1996 -8- through March 30, 1997 0.1750 to 1 From March 31, 1997 and at all times thereafter 0.1700 to 1" Section 2.13 AGENCY AND CASH MANAGEMENT FEES. Section 11.09 of the Credit Agreement is hereby amended in its entirety to read as follows: "11.09 AGENCY FEE; CASH MANAGEMENT FEE. Until payment in full of the principal of and interest on the Loans and all other amounts payable by the Company hereunder and termination of the Commitments hereunder, (a) the Company will pay to the Agent an agency fee of $75,000 per annum, which shall accrue on the first Business Day of each fiscal year of the Company (commencing on the first Business Day of 1996) and shall be payable quarterly in arrears on the last Business Day of each fiscal quarter (commencing on the Business Day immediately preceding March 31, 1996), and (b) the Company will pay to the Cash Management Agent a cash management fee of $25,000 per annum, which shall accrue on the first Business Day of each fiscal year of the Company (commencing on the first Business Day of 1996) and shall be payable quarterly in arrears on the last Business Day of each fiscal quarter (commencing on the Business Day immediately preceding March 31, 1996); PROVIDED that, upon payment in full of the principal of and interest on the Loans and the termination of the Commitments hereunder, accrued but unpaid amounts under this Section 11.09 shall automatically become due and payable." Section 2.14 PREPAYMENT FEES. The Credit Agreement is hereby amended by adding the following Section 2.11: "2.11 PREPAYMENT FEES. The Company agrees to pay the following prepayment fees: (a) A prepayment fee of $400,000 shall be due and payable by the Company to the Agent, for account of the Lenders, upon repayment of all principal and interest on the Loans and termination of the Commitments hereunder pursuant to Section 2.09 or Section 2.10 hereof or -9- otherwise (exclusive, however, of repayment pursuant to paragraphs (a), (b) or (d) of Section 2.10), if the same shall occur on or prior to February 20, 1997. (b) A prepayment fee of $200,000 shall be due and payable by the Company to the Agent, for account of the Lenders, upon repayment of all principal and interest on the Loans and termination of the Commitments hereunder pursuant to Section 2.09 or Section 2.10 hereof or otherwise (exclusive, however, or repayment pursuant to paragraphs (a), (b) or (d) of Section 2.10), if the same shall occur after February 20, 1997 and on or prior to February 20, 1998. Notwithstanding the foregoing, no such prepayment fee shall be payable upon repayment of all principal and interest on the Loans and termination of the Commitments hereunder pursuant to Section 2.10(c) hereof in connection with a Qualified Public Offering." Section 2.15 FOREIGN EXCHANGE PROTECTION. Section 9.08(f) of the Credit Agreement in hereby amended in its entirety to read as follows: "(f) Interest Rate Protection Agreements and Commodity Price Protection Agreements entered into by the Company pursuant to Section 9.18 hereof." In addition, Section 9.18 of the Credit Agreement is hereby amended by renaming said Section "INTEREST RATE AND COMMODITY PRICE PROTECTION AGREEMENTS" and by adding the following at the end of said Section: "The Company will, by no later than ten Business Days after the date hereof and at all time thereafter to and including December 31, 1996, maintain in full force and effect one or more Commodity Price Protection Agreements with ING (or an affiliate thereof) that effectively enables the Company (in a manner satisfactory to the Majority Lenders), as at any date, to protect itself against the Swiss franc exposure of Unidec for an amount of at least Sfr 585,000 per month. For each day after such tenth day on which the Company shall not have entered into such Commodity Price Protection Agreements, the Company shall pay to the Agent, for account of the Lenders, a fee equal to $500, payable on demand." -10- Section 2.16 MODIFICATIONS TO CERTAIN DOCUMENTS. Section 9.24 of the Credit Agreement is hereby amended by adding to clause (b)(i) thereof, immediately following "Senior Subordinated Debt" the following: "or the Cory Repurchase, or the Nassau Warrants or Section 7 of the Nassau Purchase Agreement". Section 3. REPRESENTATIONS AND WARRANTIES. Each of the Obligors represents and warrants to the Lenders that (i) the representations and warranties set forth in Section 8 of the Credit Agreement are true and complete on the date hereof, as if made on and as of the date hereof (or, if such representation warranty is expressly stated to have been made as of a specific date, as of such specific date), and as if each reference in said Section 8 to "this Agreement" included reference to this Amendment No. 3 and (ii) after giving effect to this Amendment No. 3, no Default shall have occurred and be continuing. Section 4. CONDITIONS PRECEDENT. As provided in Section 2 above, the amendment to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, subject to the satisfaction of the following conditions: 4.01 EXECUTION; DUE AUTHORIZATION. This Amendment No. 3 shall have been duly executed and delivered by the Company, the Subsidiary Guarantors, the Agent and the Majority Lenders. In addition, the Agent shall have received resolutions of the Board of Directors of the Company authorizing the transactions contemplated by this Agreement, including (without limitation) the amendments to the Senior Lender Warrant Agreements referred to in Section 4.09 hereof. 4.02 CORY PURCHASE AGREEMENT. The Agent shall have received a copy of the Cory Purchase Agreement and all documents and agreements relating thereto, each in form and substance satisfactory to the Agent, certified by the Company to be a true and complete copies of the originals thereof, and each of which shall be in full force and effect. 4.03 NASSAU PURCHASE AGREEMENT AND NASSAU WARRANTS. The Agent shall have received a copies of the Nassau Purchase Agreement and all documents and agreements relating thereto (including the Nassau Warrants), each in form and substance satisfactory to the Agent, certified by the Company to be true and complete copies of the originals thereof, and each of which shall be in full force and effect prior to or concurrently with the effectiveness of this Amendment. -11- 4.05 SUBORDINATED DEBT DOCUMENTS. The Agent shall have received a copy of the Senior Subordinated Debt Amendments, in form and substance satisfactory to the Agent (and which, in any event shall include covenant levels that are at least 10% more favorable to the Company than those set forth in the Credit Agreement as amended by this Amendment No. 3), certified by the Company to be true and complete copies of the originals thereof, each of which shall be in full force and effect and shall constitute all waivers necessary by the holders of the Senior Subordinated Debt to permit the Cory Repurchase, the Nassau Equity Infusion and the transactions contemplated thereby and hereby. 4.06 EQUITY PROCEEDS: DEAL COSTS. Evidence satisfactory to the Agent that (a) the Company has received from Nassau cash proceeds of at least $6,500,000 from the Nassau Equity Infusion, (b) the aggregate amount of Nassau/Gamberg Deal Costs do not and will not substantially exceed $600,000 and (c) the proceeds of the Nassau Equity Infusion will be sufficient to pay substantially all of the Nassau/Gamberg Deal Costs. 4.07 FEES AND EXPENSES. The Agent shall have received, for account of the Lenders, a fee in an amount equal to $75,000. In addition, the Company shall have paid, or reimbursed the Agent for paying, the fees and expenses of Mayer, Brown & Platt, special New York counsel to ING, in connection with this Amendment No. 3 and the transactions contemplated hereby. 4.08 SECURITY. The Agent shall have received all certificates evidencing stock of Cory acquired by the Company in connection with the Cory Repurchase, together with undated stock powers duly executed in blank. 4.09 AMENDMENT TO WARRANTS. The Company, ING and Provident shall have entered into an amendment to each of the Warrants to which ING or Provident is a party, in substantially the form of Exhibit A hereto. In addition, the Agent shall have received copies of amendments or other documents evidencing modifications to any other Warrants, each in form and substance satisfactory to the Agent, certified by the Company to be true and complete copies of the originals thereof. 4.10 LETTER REGARDING FUTURE SENIOR FINANCINGS. The Company shall have executed and delivered to ING and Provident a letter in substantially the form of Exhibit B hereto. -12- Section 5. MISCELLANEOUS. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York. -13- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: -14- SUBSIDIARY GUARANTORS TRI-STAR HOLDINGS, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as as general partner By /s/ [ILLEGIBLE] ------------------------------------- Title: UNIDEC, S.A. By ------------------------------------- Title: CORY HOLDINGS, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: CORY COMPONENTS, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: -15- SUBSIDIARY GUARANTORS TRI-STAR HOLDINGS, INC. By ------------------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By ------------------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By ------------------------------------- Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as as general partner By ------------------------------------- Title: UNIDEC, S.A. By /s/ [ILLEGIBLE] ------------------------------------- Title: CORY HOLDINGS, INC. By ------------------------------------- Title: CORY COMPONENTS, INC. By ------------------------------------- Title: -15- HOLLINGSEAD INTERNATIONAL, INC. By /s/ [ILLEGIBLE] ------------------------------------- Title: HOLLINGSEAD INTERNATIONAL LIMITED By /s/ [ILLEGIBLE] ------------------------------------- Title: -16- LENDERS INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION By /s/ [ILLEGIBLE] ------------------------------------- Title: Senior Associate THE PROVIDENT BANK By ------------------------------------- Title: -17- LENDERS INTERNATIONAL NEDERLANDEN (U.S.) CAPITAL CORPORATION By ------------------------------------- Title: THE PROVIDENT BANK By /s/ [ILLEGIBLE] ------------------------------------- Title: Vice President -17- INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Agent By /s/ [ILLEGIBLE] ------------------------------------- Title: Senior Associate -18- EXHIBIT A [Letterhead of DeCrane Aircraft Holdings, Inc.] February 20, 1996 To: Internationale Nederlanden (U.S.) Capital Corporation The Provident Bank Re: FUTURE SENIOR FINANCINGS Ladies and Gentlemen: We refer to the Credit Agreement dated as of November 2, 1994 (the "CREDIT AGREEMENT") among DeCrane Aircraft Holdings, Inc. (the "COMPANY"), the subsidiaries of the Company parties thereto, the lenders referred to therein and Internationale Nederlanden (U.S.) Capital Corporation ("ING"), as Agent. As consideration for your agreeing to enter into Amendment No. 3 to the Credit Agreement, the Company hereby agrees as follows: Section 1. RIGHT TO MAKE FIRST PROPOSAL. If the Company wishes to raise additional senior financing, or to refinance the Credit Agreement (collectively, a "FUTURE FINANCING"), the Company shall (before requesting proposals from any other possible source or arranger of such Future Financing (an "OTHER FINANCING SOURCE") and before advising any Other Financing Source of the Company's desire to raise such Future Financing) advise each of you of its desire to raise such Future Financing and give you the opportunity to make a proposal to the Company regarding the terms and conditions on which ING (or both of you together) would propose to arrange such Future Financing. Section 2. RIGHT TO MATCH OTHER PROPOSALS. If, after receiving proposals from you pursuant to Section 1 hereof, the Company wishes to solicit additional proposals for raising such Future Financing, it may do so, PROVIDED that, before granting a mandate to an Other Financing Source or accepting any proposal or commitment presented by an Other Financing Source, it shall disclose to you the terms and conditions of the proposal or commitment presented by such Other Financing Source and, if ING (or both of you acting together) agree to make a proposal or commitment on substantially the same terms and conditions as (or terms and condition preferable to) the Other Financing Source's proposal or commitment, ING or both of you acting together (as the case may be) shall be given the exclusive right to arrange such Other Financing. Section 3. TERMINATION; SURVIVAL. The Company's obligations under this letter shall terminate on the second anniversary of the date hereof. The Company's obligations under this letter shall survive any termination of the Credit Agreement. Section 4. GOVERNING LAW. This letter shall be governed by, and construed in accordance with, the law of the State of New York. Very truly yours, DeCRANE AIRCRAFT HOLDINGS, INC. By ---------------------------- Title: -2- EXHIBIT B [Form of Amendment to Senior Lender Warrant Agreement] AMENDMENT NO. 1 AMENDMENT NO. 1, dated as of February 20, 1996 (this "Amendment"), to the Common Stock Purchase Warrant, dated as of November 2, 1994 (the "Warrant"), entitling INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation ("ING"), to purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "CORPORATION"), which includes a guarantee of the obligations of the Corporation thereunder by each of the Subsidiaries of the Corporation identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (collectively, the "SUBSIDIARY GUARANTORS"). Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein. I. AMENDMENTS The Corporation, the Subsidiary Guarantors and ING wish to amend the Warrant and, accordingly, the parties hereto hereby agree that, effective as of the date hereof, the Warrant shall be amended as follows: A. NEW DEFINITION. The following defined term shall be added to Section 1.1 of the Warrant in its appropriate alphabetical location: "'NASSAU PURCHASE AGREEMENT' shall mean the Securities Purchase Agreement, dated February 20, 1996, among the Corporation, Nassau Capital Partners L.P. and NAS Partners I L.L.C." B. REMOVAL OF LIMITATIONS ON CORY GUARANTEE. The provisos at the end of the first sentence of Section 8.6 of the Warrant and Section 8.8 of the Warrant are hereby deleted. C. PUT FINANCING. Section 5.2(i) is hereby amended in its entirety to read as follows: "(i) Notwithstanding anything to the contrary in this Section 5.2: Immediately upon receipt of notice from the holders of warrants issued pursuant to the Senior Subordinate Documents, the Securities Purchase Agreement or the Nassau Purchase Agreement (such holders being referred to herein collectively as the "OTHER HOLDERS" and, together with the Holders, the "PUT HOLDERS") that such Other Holder intends to exercise put rights in connection with the repurchase of warrants (or shares issuable upon exercise of such warrants) by the Corporation, the Corporation shall, before repurchasing any such warrants (or shares issuable upon exercise of such warrants), give written notice thereof to the Holders. For a period of twenty (20) days following receipt of such notice, each Put Holder, shall be entitled, by written notice to the Corporation, to elect to require the Corporation to repurchase for cash its pro rata share of warrants (or shares issuable upon exercise of such warrants), on the basis of the number of shares of Common Stock then held or issuable upon exercise of all of the warrants held by the Put Holders and each such Put Holder. If, at the end of the expiration of such twenty-day period, any Put Holders have not elected to have the Corporation repurchase warrants (or shares issuable upon exercise of such warrants), the Corporation shall repurchase only those warrants (or shares issuable upon exercise of such warrants) for which notice has been received. If such event occurs on or prior to December 31, 2000, the holders of the warrants issued pursuant to the Securities Purchase Agreement (the "ELECTRA WARRANTS") shall only be entitled to include up to 40% of the Common Stock issuable upon exercise of the Electra Warrants for the purposes of calculating the pro rata share of such holders. Penalty Warrants (as defined in the Securities Purchase Agreement) shall be excluded for purposes of calculating the pro rata share of the holders of the Electra Warrants. The repurchase of a Holder's Warrants (or Warrant Shares) shall occur within (10) Business Days following the end of the above-described twenty-day period. At the Holder's option, any repurchase obligation not satisfied in full in cash at such time may be evidenced by a promissory note of the Corporation due within 366 days and bearing interest at a rate of 14% per annum. Notwithstanding anything to the contrary is this Section 5.2(i), the Company shall not make any payment to the holders of the warrants issued pursuant to the Nassau Purchase Agreement in satisfaction of such holders' put rights under such warrants or the Nassau Purchase Agreement, until after such time as the Company's payment obligations to the Holders under this Section 5.2(i) have been satisfied in full in cash." -2- II. REPRESENTATIONS AND WARRANTIES The Corporation represents and warrants to the Holder that the representations and warranties set forth in Section 6.2 of the Warrant are true and complete on the date hereof, as if made on and as of the date hereof, and as if each reference in said Section 6.2 to "this Warrant" included reference to this Amendment No. 1. III. MISCELLANEOUS Except as herein provided, the Warrant shall remain unchanged and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By ---------------------------- Title: -4- SUBSIDIARY GUARANTORS TRI-STAR HOLDINGS, INC. By -------------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By -------------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By -------------------------------- Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as as general partner By ---------------------------- Title: UNIDEC, S.A. By -------------------------------- Title: CORY HOLDINGS, INC. By -------------------------------- Title: CORY COMPONENTS, INC. By -------------------------------- Title: -5- HOLLINGSEAD INTERNATIONAL, INC. By -------------------------------- Title: HOLLINGSEAD INTERNATIONAL LIMITED By -------------------------------- Title: -6- INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION By -------------------------------- Title: -7- EX-10.14 14 EXHIBIT 10.14 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 15 EXHIBIT 10.15 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-10.16 16 EXHIBIT 10.16 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-10.17 17 EXHIBIT 10.17 EXHIBIT 10.17 BOEING Boeing Commercial Airplane Group P.O. Box 2707 Seattle, WA 58124-2207 Contact Contract Extension Letter Agreement, dated June 28, 1993 between Boeing Commercial Airplane Group and Tri-Star Electronics International June 28, 1993 6-5752-01-215 Mr Jack DeCrane Tri-Star Electronics International 2201 Rosecrans Ave. El Segundo CA. 90245 Subject: Contact Contract Extension Dear Jack, Attached is a revised Letter of Agreement which will extend our current contract for Electrical Contacts through May 31, 1998. If you are in agreement with the proposed terms, conditions, and pricing, sign the attached agreement and return to me no later than July 13, 1993. Should Tri-Star Electronics International choose not to agree to the revised Letter of Agreement these contact part numbers will be open for competitive bid. If you have any questions, please contact me. Sincerely, MATERIEL DIVISION /s/ Laura Robnett Laura Robnett Org. 6-5752 M/S 39-TT Phone: (206) 266-1787 BOEING Boeing Commercial Airplane Group P.O. Box 2707 Seattle, WA 58124-2207 June 28, 1993 6-5752-01-215 Subject: Electrical Contact Procurement Contract Letter of Agreement Gentlemen: The Boeing Company, the Buyer, will place a number of orders for those part numbers in Attachment "A" for any quantity, any schedule, firm fixed-price contract, referred to herein as the Procurement Package, with Tri-Star Electronics International, the Seller. This letter states the provisions applying to those orders and future orders which reference the procurement package which are referred to herein as Subsequently Placed Orders. GENERAL The Seller agrees to accept Subsequently Placed Order for unlimited quantities from Boeing Commercial Airplanes at the same price and under the same terms that apply to the original procurement package for the duration of this agreement. Such Subsequently Placed Orders must be entered with the Seller lead time away and scheduled for delivery prior to May 31, 1996. In the event that the Seller fails to deliver prior to May 31, 1998 as scheduled, such delinquent shipments will continue to have the pricing and terms of the procurement package until delivery is made. Delivery schedules for Subsequently Placed Orders will be negotiated with the seller at the time of order placement. In the event additional quantities/part numbers are required, the seller shall be given the first opportunity to supply such parts at the contract price. Should the seller be unable to supply items in quantities and schedule required, the buyer reserves the right to purchase such items from other suppliers. Supplier shall reserve, at all times, at least five (5) percent of the next 12 months requirements in stock to accommodate shortflow requirements. DURATION The duration of this agreement will extend from the signature date of this Letter of Agreement through May 31, 1998. LETTER # 6-5752-01-215 PAGE 2 BOEING TERMS AND CONDITIONS The Boeing Commercial Airplanes Terms and Conditions, form D1 4100 4045, Rev, 5/92, will apply to all orders of the procurement package and all subsequently placed orders referencing this letter (See note A52 below). In the event conflict exists between the Terms and Conditions and this letter, the latter shall govern. ADDITIONAL PROVISIONS PER PURCHASE ORDER NOTES The Buyer and Seller have mutually agreed that the following purchase order notes will apply to the procurement package and Subsequently Placed Orders referencing it: APM50 Invoicing on this purchase contract should be mailed to the Boeing Commercial Airplane Group, Attention Accounts Payable, P. 0. Box 34125, Seattle, WA., 98124-1125 A02 This purchase order shall be governed by and deemed to include the provisions of Boeing document D6-55772 entitled "Pay From Receipt - additional terms and conditions regarding invoicing and payment." In the event of conflict between the provisions of Boeing document D6-55772 and any other applicable terms and conditions, the provisions of Boeing document D6-55772 shall control. A18 Seller agrees not to make any change in materials or design details which would affect the part or any component part thereof with regard to (A) part number identification, (B) physical or functional changeability, and (C) repair and overhaul procedures and processes and material changes which affect these procedures without prior written approval of buyer, and without revising the part numbers and the originals of all drawings or data. (Seller will place the above clause in all its subcontracts for supplier identified purchased equipment whether such equipment is supplied to seller as an end item or as a component parts of an end item.) A52 This order is subject to agreements per Boeing Letter 6-5752-01-215 between Boeing Commercial Airplane Group Materiel and Tri-Star Electronics International dated June 28, 1993. B39 Strict adherence to the purchase order delivery schedule is required. Immediate written notice of shipment delays must be given by the supplier to the Boeing Buyer. LETTER # 6-5752-01-215 PAGE 3 BOEING B83 Any shipment delinquent 5 days past promised ship date will be routed via premium air at seller's expense, provided delay is not Boeing's responsibility. H54 Notwithstanding the provisions of the changes clause, seller hereby waives any claim it might have against Buyer as a result of the rescheduling of the delivery requirements of this order and relieves and releases Buyer of any cost, charge or liabilities. H57 Seller agrees that, notwithstanding the provisions of the termination for convenience clause, any unshipped portion of this order may be terminated by Buyer without any cost, charge, or liability to Buyer, provided, Buyer notifies Seller at least 90 days in advance of the shipping date specified in the Purchase Order. L01 Parts returned to seller for rework due to grief or rejection that appear on the Buyer's shortage report will be shipped premium air at Seller's expense from and to Boeing receiving. Q09 Seller certifies that material and/or finished parts shall be controlled and tested in accordance with, and will meet, specified order requirements, and that applicable records are on file subject to examination. Seller agrees to furnish certified copies of test and/or control data upon request from buyer. Q87 "This order is subject to document D1-9000. Boeing reserves the right to conduct surveillance at seller's plant." S01 Work under this order is subject to Boeing surveillance at Seller's plant. Boeing Quality Control representative may elect to conduct inspection either on a random basis or to the extent of 100 percent inspection. Seller will be notified if Boeing inspection is to be conducted on specific shipments. No shipments are to be held for Boeing inspection unless notification is received prior to, or at time of, material being ready for shipment. S68 Representatives of the buyer and/or Federal Aviation Administration (if non-domestic, equivalent government agency) may inspect and evaluate seller's facilities' system, data, equipment, personnel and all completed articles manufactured for installation on Boeing commercial production airplanes. LETTER # 6-5752-01-215 PAGE 4 BOEING ADDITIONAL TERMS All other Boeing Companies, divisions or groups may purchase to this agreement at the same pricing and terms afforded to the Boeing Commercial Group. PRICING The pricing applying to the orders making up the procurement package and all subsequently placed orders referencing this letter are as listed on Attachment A. This pricing, as listed, will be firm for any quantity for orders placed from the date of the contract and scheduled for delivery prior to May 31, 1998. ABNORMAL RHODIUM ESCALATION CHARGES The Following concept for calculating abnormal escalation for rhodium plated electrical contacts will be in effect. The amount of rhodium in each electrical contacts is as follows: PART NUMBER RHODIUM CONTENT (GRAMS) ----------------------------------------------------- BACC47CN3 .003151 BACC47CN3B .003151 BACC47CP2T .002620 BACC47CP2TB .002620 BACC47CP3T .003744 The base price for rhodium shall be $50.00 per gram. A +/- 5% band shall not be calculated for price adjustments that fall within this band. The following formula shall be used for price adjustments. (Monthly weighted average rhodium price - (base rhodium price +/- 5%) X rhodium content (grams) X quantity of electrical contacts delivered in the referenced tine period. Price adjustments will be in effect for electrical contacts delivered to Boeing from June 28, 1993 through May 31, 1996. As soon as practical after each quarter delivery date (March 31, June 31, September 30, December 31), Tri-Star will send, to Boeing, an assertion for the rhodium adjustment for that quarter. Documentation provided to Boeing shall include: LETTER # 6-5752-01-215 PAGE 5 BOEING - 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, Boeing will issue a non-receivable purchase order for the cost adjustment. Examples RHODIUM PRICE INCREASE Current month weighted average price: $70.00/gr. Base price: $50.00/gr. + 5% = $52.50/gr. P/N deliveries: BACC47CN3 18,000 for month Rhodium Content: .003151 gr. Adjustment: ($70.00 - $52.50) X .003151 X 18,000 = $992.57 RHODIUM PRICE NO CHARGE Current month weighted average price: $51.00/gr. Base price: $50.00/gr. + 5% = $52.50/gr. Adjustment: Current price is not above $52.50/gr. therefore no price adjustment. RHODIUM PRICE DECREASE Current month weighted average price: $40.00/gr. Base price: $50.00/gr. - 5% = $47.50/gr. P/N deliveries: BACC47CN3 18,000 for month Rhodium Content: .003151 gr. Adjustment: ($40.00 - $47.50) X .003151 X 18,000 = ($425.39) ACCEPTANCE This order is Buyer's offer to Seller, and acceptance is strictly limited to its terms. Buyer shall not be bound by and specifically objects to any term or condition whatsoever which is different from or in addition to the provisions of the order. Seller's commencement or performance or acceptance of this order, in any matter shall conclusively evidence agreement to this order unless such term or condition is mutually agreed to by the parties in writing. BOEING LIMITED ATTACHMENT -- A Suppliers: TRI-STAR ELECTRONICS INTERNATIONAL PERIOD OF PERFORMANCE: 06/01/93 TO 05/31/98 NUMBER OF MONTHS: 60 ------------------------------------- ---------------------- Vendor Boeing Contract Part Number Part Number Price Each 1993-1998 ------------------------------------- ---------------------- M39029-4-113 $0.1920 M39029-56-348 $0.0960 M39029-56-351 $0.1248 M39029-58-363 $0.0672 M39029-5-116 $0.1056 M39029-5-118 $0.2400 M39029-11-145 $0.0912 M39029-1-100 $0.1440 M39029-1-101 $0.0960 M39029-1-102 $0.1440 M39029-30-217 $0.2400 M39029-30-220 $1.4400 M39029-57-354 $0.0960 M39029-57-356 $0.2400 M39029-57-357 $0.1152 M39029-58-362 $0.0960 M39029-63-368 $0.0960 M39029-64-369 $0.0768 M39029-85-456 $4.8000 Page No. 2 BOEING LIMITED ATTACHMENT -- A Suppliers: TRI-STAR ELECTRONICS INTERNATIONAL PERIOD OF PERFORMANCE: 06/01/93 TO 05/31/98 NUMBER OF MONTHS: 60 --------------------------------------- ------------------------ Vendor Boeing Contract Part Number Part Number Price Each (1993-1998) --------------------------------------- ------------------------ TRI-STAR INC. 118-2020-074 $0.1824 316-1616-634 $0.3840 316-1620-634 $0.3840 318-2020-252 $0.4320 BACC47CN1S $0.0960 BACC47CN3 $0.3072 BACC47CN3B $0.3648 BACC47CP1S $0.1152 BACC47CP2T $0.2880 BACC47CP2TB $0.3456 BACC47CP3T $0.4224 BACC47DE1 $0.1248 BACC47DE4 $0.1536 BACC47DE5 $0.1152 BACC47DE6 $0.1152 BACC47DE7 $0.1536 BACC47DE8 $0.1152 BACC47DJ2 $0.3360 BACC47DP1 $0.3360 BACC47DP2 $0.5760 BACC47DP3 $2.4000 BACC47DP4 $2.4000 BACC47DP5 $2.8800 BACC47DR1 $0.4320 BACC47DR1B $0.4320 BACC47DR3 $2.4000 BACC47DR4 $3.3600 BACC47DR5 $3.8400 BACC47EF1 $0.0864 BACC47EF2 $0.1344 BACC47EG1 $0.2112 BACC47EG2 $0.2112 BACC47ER1 $0.3168 M39029-32-248 $0.2400 M39029-4-110 $0.0672 M39029-4-111 $0.0768 Page No. 1 BOEING CONCLUSION Concurrence to the various points discussed in this letter of agreement is attested to by the signatures of the Buyer and Seller below. Tri-Star Electronics Boeing Commercial International Airplane Group /s/ John Schneph 7/8/93 /s/ Laura Robnett 6-28-93 - ------------------------------ --------------------------- John Schneph Date L. L. Robnett Date President Buyer /s/ Dale Peterson 6-28-93 --------------------------- D. M. Peterson Date Buyer Lead /s/ Donald W. Torcaso 6/28/93 --------------------------- D. W. Torcaso Date Manager, Electrical Stds. BOEING COMMERCIAL AIRPLANE GROUP PURCHASE ORDER TERMS AND CONDITIONS 1. ACCEPTANCE. This Order is Buyer's offer to Seller, and acceptance is strictly limited to its terms. Buyer shall not be bound by and specifically objects to any term or condition whatsoever which is different from or in addition to the provisions of this Order, whether or not such term or condition will materially alter this Order, Seller's commencement of performance, or acceptance of this Order, in any manner shall conclusively evidence agreement to this Order, as written. 2. DEFINITIONS. Whenever used in this Order, (a) "Customer" means any customer of Buyer, any subsequent owner, operator or user of the Goods, and any other individual, partnership, corporation or person or entity which has or acquires any interest in the Goods from, through or under Buyer; (b) "FAR" means the United States Government Federal Acquisition Regulations; (c) "Goods" means all of the goods, services, documents, data, software and other information or items furnished or to be furnished to Buyer under this Order; and (d) "Order" means this purchase order, including the provisions on its face, these Purchase Order Terms and Conditions, and all of the specifications, technical descriptions, statements of work, drawings, designs, documents, and other requirements and provisions attached to, incorporated into or otherwise made a part of this purchase order by Buyer. 3. SHIPMENT/DELIVERY. Shipments or deliveries, as specified in this Order, shall be strictly in accordance with the specified quantities, without shortage or excess; the specified schedules, neither ahead of nor behind schedule; and the other requirements of this Order. Seller shall promptly notify Buyer in writing of any anticipated or actual delay, the reasons therefor, and the actions being taken by Seller to overcome or minimize the delay. If requested by Buyer, Seller shall, at Seller's expense, ship Goods via air or other fast mode of transportation to avoid or minimize the delay to the maximum extent possible. 4. PACKING AND SHIPPING. Seller shall prepare and pack the Goods to prevent damage and deterioration, and shall comply with carrier tariffs. Charges for preparation, packing, crating and cartage are included in the price unless separately specified in the Order. Goods sale F.O.B. place of ship shall be forwarded collect. Seller shall make no declaration concerning value of Goods shipped, except for Goods on which tariff rating is dependent upon released or declared value, in which event Seller, shall release or declare such value at maximum value within the lowest rating. 5. INVOICE AND PAYMENT. Seller shall issue a separate invoice for each delivery and shall not issue any invoice prior to the Order schedule date or actual delivery date, whichever is later. Payment will be made after receipt of Goods and current invoice. Unless freight or other charges are itemized, any discount may be taken on the full amount of invoice. Payment due date, including discount periods, shall be computed from the date of receipt of Goods or correct invoice (whichever is later) to the date Buyer's check is mailed or otherwise tendered. Seller shall promptly relay to Buyer any amounts paid in excess of amounts due Seller. 6. EXAMINATION OF RECORDS. Seller shall maintain complete and accurate records showing the sales volume of all Goods. Such records shall support all services performed, allowances [illegible] and costs incurred by Seller in the performance of the Order, including but not limited to those [illegible]. Such records and other date shall be capable of verification through audit and analysis by Buyer and shall be available to Buyer at Seller's [illegible] for Buyer's examination and audit at all reasonable times from the date of the Order until three (3) years after that payment under the 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 [illegible] once re[illegible]tions with Seller relating to existing or future orders for Goods [illegible] out [illegible] to negotiation of accurate adjustments pursuant to Clause 11, "CHANGES," and Clause 12, "TERMINATION FOR CONVENIENCE." Buyer shall treat such information as confidential. 7. INSPECTION. Buyer's acceptance of Goods shall be subject to Buyer's final inspection within a reasonable time after receipt at destination, notwithstanding any payment or prior test or inspection in addition. Buyer and the Federal Aviation Administration [illegible] government agency) may inspect and evaluate Seller's ([illegible], including but not limited to facilities, systems, equipment, testing, data, personnel and all work-in-progress and completed goods manufactured for installation on Buyer's [illegible]. No inspection, test or other approval or acceptance, and no delay or failure inspect, test or give prior approval or acceptance, or failure to discover any defect or other noncompliance, shall relieve Seller of any of its obligations nor impair any rights or remedies of Buyer or Customers. 8. REJECTION. Buyer [illegible] reject or revoke acceptance [illegible] "rejection" [illegible] of any or all Goods, including any tender thereof, which are not strictly in conformance with all of the requirements of this Order, and shall notify seller of such rejection by notice, rejection tag or other communication. At Seller's risk and expense, all such goods will be returned to Seller for immediate Seller repair, replacement or other correction and recovery to Buyer, provided, however, that with respect to any or all such Goods, at Buyer's election and at Seller's risk and expense. Buyer may: (a) hold, retain or return such Goods, without permitting any repair, replacement or other correction by Seller; (b) hold or retain such Goods for repair by Seller or, at Buyer's election, for repair by Buyer with such assistance from Seller as Buyer may require; (c) hold such Goods until Seller has delivered conforming replacements for such Goods; (d) hold such Goods until conforming replacements are obtained from a third party; or (e) return such Goods with instructions to Seller as to whether the Goods shall be repaired or replaced and as to the manner of redelivery. All repair, replacement and other correction and redelivery shall be completed within such time as Buyer may require. All costs and expenses and loss of value incurred as a result of or in connection with noncomformance and repair, replacement or other correction may be recovered from seller by equitable price reduction, setoff or credit against any amounts which may be owed to Seller under this Order or otherwise. 9. WARRANTIES. Seller warrants to Buyer and Customers that Goods shall: (a) conform in all respects to all of the requirements of this Order; (b) be free from all defects in materials and workmanship; and (c) to the extent not manufactured pursuant to detailed designs furnished by Buyer, be free from all defects in design and be fit for the intended purposes. 10. INDEMNITY/INFRINGEMENT. Seller shall indemnify, defend, and save Buyer 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 and those exceeding actual damages and/or including attorneys' fees), 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 semiconductor mask work, or based on misappropriation or wrongful use of information or documents) and arising out of the manufacture, sale or use of Goods by Buyer or Customers. Buyer and/or Customers shall a duly notify Seller of any such claim, suit or action on behalf of Buyer and/or Customers. Seller shall have no obligation under this clause with regard to any infringement arising from: (a) Seller's compliance with formal specifications issued by Buyer where infringement could not be avoided in complying with such specifications or (b) use or sale of Goods in combination with other items when such infringement would not have occurred from the use or sale of those Goods solely for the purpose for which they were designed or sold by Seller. For purposes of this Clause 10 only, the term Customer shall not include the U.S. Government and the term Buyer shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all officers, agents, and employees of Boeing or any Boeing subsidiary. 11. CHANGES. Buyer's Material Representative may from time to time direct changes in writing within the general scope of this Order in any one or more of the following: (a) technical requirements and descriptions, specifications, statements of work, drawings or designs: (b) shipment or packing methods; (c) place of delivery, inspection or acceptance; (d) reasonable adjustments in quantities or delivery specifics or [illegible] other amount at Buyer furnished property. Seller shall comply [illegible] with such direction and avoid unnecessary costs related thereto, if any such change causes an increase or decrease in the cost or the time required for [illegible] of this Order, an equitable adjustment in the [illegible] and schedules of this Order shall be made to reflect such increase or decrease, and this Order shall be modified in writing accordingly. Unless otherwise agreed in writing, any Seller [illegible] adjustment must be delivered to Buyer in writing within thirty (30) days after Seller's receipt of such [illegible]. Seller shall make available for Buyer's examination relevant books and records to verify Seller's claim for adjustment. Failure of Buyer and Seller to agree upon any adjustments shall not excuse Seller from [illegible]in accordance with such direction. If Seller considers the conduct of any of Buyer's employees to have constituted a change hereunder, Seller shall notify Buyer immediately in writing as to the nature of such conduct and its effect upon Seller's conformance. [illegible]direction from Buyer's Material Representative, Seller shall take no action to implement [illegible] such change. 12. TERMINATION FOR CONVENIENCE. Buyer may terminate this Order in writing or from time to time in [illegible], effective as of the date specified by Buyer, in accordance with the provisions of FAR 52.259-2 (APR 1984, without Alternates [illegible] provisions are incorporated herein by reference. In FAR 52.259-2, "Government and Contracting Officer" shall mean Buyer: "Contractor" shall mean Seller and "this Contract" and "the Contract" shall mean this Order. All references to one (1)-year in [illegible] clause are changed to the six (6) months, and all references in [illegible] clause are deleted. 13. CANCELLATION FOR DEFAULT. Buyer may cancel this Order in [illegible] [illegible] to time in part, effective as of the date specified by Buyer in accordance with provisions at FAR 52.249-8 (APR 1984: without Alternates), which provisions are incorporated herein by treference, in the event of any Seller default or in the event of Seller's suspension of business, insolvency, reorganization or arrangement or liquidation proceedings, assignment for the benefit of creditors or seller's trusteee in bankruptcy or Seller as debtor in possession not assuming this Order pursuant to a Federal Bankruptcy Court's approval within sixty (60) days after the bankruptcy petition was filed, or appointment of a receiver for Seller's property. In FAR 52.249-8, "Government" and "Contracting Officer," shall mean Buyer except in paragraph (c). "Contractor" shall mean Seller. "this Contract" and "the Contract" shall mean this Order, and all references to a "disputes" clause are deleted. If Buyer and Seller fail to agree on the amount to be paid for manufacturing materials referred to in paragraph (e) of FAR 52.249-8, the amount shall be the reasonable value thereof but shall not exceed that portion of the price of this Order which is reasonably allocable to such materials. 14. RESPONSIBILITY FOR PERFORMANCE. Buyer's issuance of this Order is based in part on Buyer's reliance on Seller's ability, expertise and awareness of the intended use of Goods, and Seller's continuing compliance with all applicable laws and regulations during the performance of this Order. Further, Seller shall not, by contract, operation of law, or otherwise, assign any of its rights or interest in this Order (including but not limited to any right to monies due or to become due), delegate any of its duties or obligations under this Order, or subcontract all or substantially all of its performance of this Order to one or more third parties, without Buyer's prior written consent. No assignment, delegation or subcontracting by Seller with or without Buyer's consent shall relieve Seller of any of its obligations under this Order. Buyer may unilaterally assign any rights or title to property under this Order to any wholly owned subsidiary of The Boeing Company. Seller shall have a continuing obligation to promptly notify Buyer of any violation of or deviation from Seller's approved inspection/quality control system and to advise Buyer of the quantity and specific identity of any Goods delivered to Buyer during the period of any such violation or deviation. 15. PUBLICITY. Seller shall not, and shall not require that its subcontractors and suppliers (of any [illegible] shall not cause or permit to be released any publicity, advertisement, news release, public announcement or denial or confirmation of same, in whatever form, regarding any aspect of this Order or the Goods or program to which they pertain without Buyer's prior written approval. 16. COMPLIANCE WITH LAWS. Seller shall be responsible for complying with all laws, including, but not limited to, any statute rule, regulation, judgment decree, order or permit [illegible] to its performance under this Order. Seller further agrees (1) to notify Buyer of any obligation under this Order which is prohibited under any applicable environmental law, at the earliest [illegible] 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 Buyer 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 environmental regulation during performance of this Order. 17. RESPONSIBILITY FOR PROPERTY. Unless otherwise specified, upon delivery to Seller or manufacture or acquisition by Seller of any materials, parts, tooling, data or other [illegible] title to which is in Buyer, Seller assumes the risk of and shall be responsible for any loss thereof or damage thereto. In accordance with the provisions of this Order, but in any event, [illegible] Seller shall return such [illegible] Buyer in the condition in which it was received except for reasonable wear and tear [illegible] except for such Property as has been reasonably consumed in the performance of this Order. 18. CONFIDENTIAL, PROPRIETARY, AND/OR TRADE SECRET INFORMATION AND ITEMS. Buyer and Seller shall each [illegible] and protect form disclosure all (a)commercial, proprietary, and/or trade secret information; (b) tangible items containing [illegible]. Buyer and Seller shall each use Proprietary Materials of the other only in the performance of and for the purpose of this Order. Provided however, that despite any other obligations or restrictions imposed by this Clause 18, buyer shall, whenever [illegible]. Upon Buyer's request at any time, and in any event upon the completion, termination or cancellation of this Order, Seller shall return all of Buyer's Proprietary Materials, and all materials derived from Buyer's Proprietary Materials, to Buyer unless specifically directed otherwise in writing by Buyer. Seller shall not, without the prior written authorization of Buyer, sell or otherwise dispose of (as scrap or otherwise) any materials containing, conveying, [illegible] or made in accordance with or by reference to any Proprietary Materials of Buyer. Prior to disposing of such materials as scrap, Seller shall render the materials unusable. Buyer shall have the right to audit Seller's compliance with this Clause 18. Seller may disclose Proprietary Materials of Buyer to its subcontractors as required for the performance of this Order, provided that each such subcontractor first assumes, by written agreement, the same obligations imposed on Seller under this Clause 18 relating to such Proprietary Materials; and Seller shall be liable to Buyer for any breach of such obligation by such subcontractor. The provisions of this Clause 18 shall survive the performance, completion, termination or cancellation of this Order. This Clause 18 supersedes and replaces any and all prior agreements or understandings over confidential, proprietary, and/or trade secret information, or tangible items containing, conveying or embodying such information, related to any Goods, regardless of whether disclosed to the receiving party before or after the effective date of these Purchase Order Terms and Conditions. 19. INTEGRITY IN PROCUREMENT: Buyer's policy is to maintain high standards of integrity in procurement. Buyer's employees must ensure that no favorable treatment compromises their impartiality in the procurement process. Accordingly, Buyer's employees must strictly refrain from soliciting or accepting any payment, gift, favor, or thing of value which could improperly influence their judgment which respect to either issuing a purchase order or administering this Order. Consistent with this policy, Seller agrees not to provide or offer any employee of Buyer any payment, gift, favor or thing of value for the purpose of improperly obtaining or rewarding favorable treatment in connection with any purchase order of this Order. 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 Division Chief Counsel of Buyer. 20. NONWAIVER AND PARTIAL INVALIDITY. Any and all failure, delay or forbearance of Buyer in insisting upon or enforcing at any time any of the provisions of this Order, or in exercising any rights or remedies under this Order, shall not construed as a waiver or relinquishment of any such provisions, rights or remedies in these or any other instances: rather, the same shall be and remain in full force and effect. Further, if any provision of this Order is or becomes void or unenforceable by law, the remainder shall be valid an enforceable. 21. GOVERNMENT REQUIREMENTS. Within Seller's invoice or other them satisfactory to Buyer, Seller shall certify that Goods covered by this Order were procured in compliance with Sections 6, 7 and 12 of the Fair Labor Standards Act, as amended, and the regulations and orders of the U.S. Department of Labor issued thereunder. Paragraph (b) of the Equal Opportunity clause set forth in FAR [illegible]. FAR [illegible]. Affirmative Action for Handicapped Workers are incorporated herein by reference, except that "Contractor" shall mean Seller in such FAR clauses. The appearance of a U.S. Government agency prime contract number on the face of this Order incorporates into this Order, without further notice or action. Boeing Form 01 4100 4050, entitled "Additional Terms and Conditions - Government Contracts." 22. GOVERNING LAW. This Order and the performance thereof shall be governed by the law of the State of Washington, U.S.A., exclusive of the choice of law rules thereof. 23. ENTIRE AGREEMENT. This Order sets forth the entire agreement, and supersedes any and all other agreements, understandings and communications between Buyer and Seller related to the subject matter of this Order. No amendment or modification of this Order shall be binding upon Buyer unless set forth in a written instrument signed by Buyer's Material Representative. The rights and remedies afforded to Buyer or Customers pursuant to any provision of this Order are in addition to any other rights and remedies afforded by any other provisions of this Order, by law or otherwise. EX-10.18 18 EXHIBIT 10.18 EXHIBIT 10.18 ASSET PURCHASE AND SALE AGREEMENT AMONG ALLARD INDUSTRIES, INC., GERALD R. ALLARD, TRUSTEE OF THE GERALD R. ALLARD REVOCABLE TRUST OF 1994, THE ALLARD CHILDREN'S TRUST F/B/O JOHN R. ALLARD, THE ALLARD CHILDREN'S TRUST F/B/O MICHAEL E. ALLARD, YOUNES NAZARIAN, DAVID AND ANGELA NAZARIAN, TRUSTEES OF NAZARIAN FAMILY TRUST, THE PRINCIPAL SHAREHOLDERS OF ALLARD, REGISTRANT AND ADS ACQUISITION, INC. ASSET PURCHASE AND SALE AGREEMENT ASSETS OF ADS DIVISION OF ALLARD INDUSTRIES, INC. BY ADS ACQUISITION, INC., A SUBSIDIARY OF DECRANE AIRCRAFT HOLDINGS, INC. This Asset Purchase and Sale Agreement ("Agreement") is made and entered into by and among Allard Industries, Inc. ("Allard"); Gerald R. Allard, Trustee of The Gerald R. Allard Revocable Trust of 1994, The Allard Children's Trust f/b/o John R. Allard, The Allard Children's Trust f/b/o Michael E. Allard, Younes Nazarian, and David and Angela Nazarian, Trustees of The Nazarian Family Trust, the principal shareholders of Allard (collectively, the "Principal Shareholders"); DeCrane Aircraft Holdings, Inc. ("DAH") and ADS Acquisition, Inc. ("Buyer"), based on the following facts: Allard is the owner of and desires to sell all of the assets of its Aerospace Display Systems division (which division is referred to herein as "ADS"); Buyer desires to purchase the assets of ADS; Based on the foregoing facts and circumstances, the parties hereby agree as follows (capitalized terms being used herein as defined where noted in EXHIBIT A): 1. ASSETS TO BE PURCHASED AND SOLD. 1.1 THE ADS ASSETS. On the Closing Date, subject to any exclusions provided for in Section 1.3, Allard shall transfer to Buyer all of the assets, properties, rights (contractual or otherwise) and business of ADS (including but not limited to the goodwill of ADS), in each case whether in the nature of real, personal, or mixed property and whether tangible or intangible and known or unknown (collectively, the "Property"). Without limiting the generality of the foregoing, the assets to be transferred include: 1.1.1 REAL PROPERTY. Any and all real property (the "Real Property"), including that listed on Schedule 1.1.1; 1.1.2 REAL PROPERTY LEASES. Any and all rights under leases of real property and improvements (the "Real Property Leases"), including the ADS plant in Hatfield, Pennsylvania and the office in Phoenix, Arizona and any others listed on Schedule 1.1.2; 1.1.3 PERSONAL PROPERTY. (a) All machinery and equipment (the "Machinery and Equipment"), including that listed on Schedule 1.1.3(a); (b) All tooling (the "Tooling"), including that listed on Schedule 1.1.3(b); (c) All parts and furniture ("Parts and Furniture"), including that listed on Schedule 1.1.3(c); (d) All rights under leases of equipment vehicles or other tangible personal property ("Personal Property Leases");including that listed on Schedule: 1.3.3(d); 1.1.4 INVENTORY. All raw materials, supplies, component parts, work-in-process and finished goods inventory and other inventory (the "Inventory"), including that listed on Schedule 1.1.4; 1.1.5 VEHICLES. All automobiles and other motor vehicles (the "Vehicles"), including those listed on Schedule 1.1.5; 1.1.6 PERMITS. All licenses, permits, consents, authorizations, approvals, certificates and franchises of any regulatory, administrative or other agency or body, or issued to or held by ADS (collectively, the "Permits"), including those matters listed in Schedule 1.1.6; 1.1.7 PROPRIETARY RIGHTS. (a) All patents, inventions, copyrights, computer software, trademarks, names, service marks, trade names, marks, symbols and logos; (b) All trade secrets, processes, proprietary knowledge, know-how, and other processes which are not filed or registered but which constitute confidential proprietary information; (c) All franchises, licenses, sublicenses, permits or agreements in respect of any of the foregoing; and (d) All filings, registrations, or issuances of any of the foregoing with or by any federal, state, local or foreign regulatory, administrative or governmental authority, and any applications for any of the foregoing (collectively, "Registrations"); in each case which ADS owns, uses, has used or has the right to use or to which ADS is a party (collectively, the "Proprietary Rights"), including those described in Schedule 1.1.7; 2 1.1.8 CONTRACTS. All rights under contracts and agreements (not otherwise described in this Section 1.1) which have in whole been specifically for the benefit or detriment of ADS (collectively, the "Contracts"), including purchase and sales orders, quotations, executory commitments, instruments, guaranties, indemnifications, arrangements or other understandings, and including those matters listed on Schedule 1.1.8; 1.1.9 RECEIVABLES. All accounts and notes receivable (the "Receivables"), including those listed on Schedule 1.1.9; 1.1.10 INVESTMENTS. All investments which relate to or are used in the business of ADS (the "Investments"), including those investments described on Schedule 1.1.10; 1.1.11 DEPOSITS AND PREPAID EXPENSES. All of the deposits and prepaid expenses excluding prepaid insurance premiums of Allard which relate to or are used in the business of ADS (respectively, the "Deposits" and the "Prepaid Expenses"), including those deposits and prepaid expenses listed on Schedule 1.1.11; 1.1.12 TERMINATION CLAIMS. All claims for termination for convenience or other claims against prime contractors, government agencies, or others with respect to the termination of a contract prior to the complete performance by ADS of such contract (collectively, the "Termination Claims"), including such claims as are listed on Schedule 1.1.12; 1.1.13 [Omitted] 1.1.14 OTHER CLAIMS. All claims, causes of action, demands and pending litigation (not otherwise described in this Section 1.1) in which ADS, or Allard on behalf of ADS, is seeking the recovery of money or equitable relief (collectively, the "Claims"), including those matters listed on Schedule 1.1.14; 1.1.15 BOOKS AND RECORDS. All books of account, customer lists, files, papers and records normally maintained by ADS, together with a complete and accurate copy of all of the books of account and records of Allard which relate to ADS; 1.1.16 TELEPHONE NUMBERS. All telephone, fax, e-mail and other numbers for communication with ADS, including those numbers listed on Schedule 1.1.16; and 1.1.17 GOODWILL. All goodwill of Allard which directly relates to ADS or the business of ADS. 1.2 NON-ASSIGNMENT OF ASSETS. To the extent that any asset described in Section 1.1 may not be assigned to Buyer, or may only be assigned to Buyer with the consent 3 of a third party, then NOTWITHSTANDING anything to the contrary in this Agreement, neither this Agreement nor any action taken shall constitute an assignment or an agreement to assign; PROVIDED, HOWEVER, that in such case Allard will use its best efforts to obtain the consent of such party to the assignment to Buyer. 1.3 EXCLUDED ASSETS: Notwithstanding Section 1.1, the assets (if any) listed on Schedule 1.3 shall be excluded from the "Property" for all purposes. 2. ASSUMPTION OF CERTAIN LIABILITIES; NO ASSUMPTION OF OTHER LIABILITIES. 2.1 On the Closing Date, Buyer will assume: 2.1.1 ACCOUNTS PAYABLE. All accounts payable for current purchases by ADS incurred in the ordinary course of its business which (i) are set forth on the schedule of ADS accounts payable as of April 30, 1996 attached as Schedule 2.1.1, or (ii) if incurred after April 30, 1996, are (x) completely and accurately reflected in all material respects on ADS's books and records delivered to the Buyer on the Closing Date and (y) are of the kind expressly permitted by the affirmative covenants, and not prohibited by the negative covenants, set forth in Section 4 hereof; PROVIDED, HOWEVER, that in any case Buyer shall not assume the obligation to pay any vendor to ADS the amount of which obligation is disputed by ADS. 2.1.2 ACCRUED OPERATING EXPENSES. All accrued operating expenses incurred by ADS in the ordinary course of business which (i) are reflected as a liability as set forth on the balance sheet of ADS as at April 30, 1996 attached as Schedule 2.1.2(a) (the "April 30, 1996 Balance Sheet"), or (ii) if incurred after April 30, 1996, are (x) completely and accurately reflected in all material respects on ADS's books and records delivered to the Buyer on the Closing Date and (y) are of the kind expressly permitted by the affirmative covenants, and not prohibited by the negative covenants, set forth in Section 4 hereof. 2.1.3 REAL PROPERTY LEASES: PERSONAL PROPERTY LEASES. The obligations of ADS or Allard arising under the Real Property Leases listed on Schedule 1.1.2 and the Personal Property Leases listed on Schedule 1.1.3.(d). 2.1.4 OPEN PURCHASE CONTRACTS. To the best of the knowledge of Allard and the Principal Shareholders, the obligations of ADS or Allard, as seller, to perform all purchase contracts in existence on the Closing Date which (a) were entered into by ADS or Allard in the ordinary course of business and (b) on average, provide for pricing materially consistent with practices of ADS during calendar 1996 sufficient to result in Buyer selling such goods and/or services at the gross margin reported for the current year to date as of the Closing Date in the Financial Statements delivered pursuant hereto. 2.1.5 WARRANTY OBLIGATIONS. The obligation of ADS to provide warranty work under any purchase contract fulfilled by ADS, BUT ONLY to the extent of (i) warranty work reflected as an accrued liability on the April 30, 1996 Balance Sheet, and (ii) warranty work for which Allard reimburses the Buyer pursuant to Section 4.2.14. 4 2.1.6 ROYALTIES AND LICENSE FEES. The royalties and license fees owing by ADS, but ONLY TO the extent specified in Schedule 2.1.6. 2.1.7 VACATION AND SICK LEAVE. To pay for vacation time and sick leave, BUT ONLY to the extent such liabilities are specified on Schedule 2.1.7 AND are reserved for in the April 30, 1996 Balance Sheet. 2.2 LIABILITIES NOT ASSUMED. With the exception of the liabilities assumed pursuant to Section 2.1, Buyer shall not by the execution or performance of this Agreement, or otherwise, assume or otherwise be responsible for any liability or other obligation of ADS or Allard of any kind, nature or description, whether such liability or obligation is mature or not, liquidated or unliquidated, fixed or contingent, known or unknown, whether arising out of occurrences prior to, at or after the date of this Agreement, including those rising from breach of contract, breach of any warranty, infringement, fraud, violation of any law, rule or regulation, or out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim or other demand. Without limiting the foregoing, Buyer shall not assume any obligations of ADS or Allard arising in connection with any Employee Benefit Plan. 3. REPRESENTATIONS AND WARRANTIES. 3.1 JOINTLY BY BUYER AND DAH. Buyer and DAH hereby jointly and severally represent and warrant to Allard and Principal Shareholders that, except as set forth on Schedule 3.1, the representations and warranties of Buyer and DAH, and either of them, contained in this Agreement, including those contained in this Section 3.1, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. Buyer and DAH hereby jointly and severally represent and warrant to Allard and Principal Shareholders the following: 3.1.1 ORGANIZATION. DAH is a Corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and has all requisite corporate power and authority to own, lease and operate its respective properties and conduct its respective businesses as now being conducted. Buyer is a Corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its respective properties and conduct its respective businesses as now being conducted. Buyer and DAH are each duly qualified, or will be duly qualified prior to the Closing Date, to do business and in good standing in each jurisdiction listed on Schedule 3.1.1, are not qualified to do business in any other jurisdiction and neither the nature of the business conducted by either of them nor the property either of them owns, leases or operates requires either of them to qualify to do business as a foreign corporation in any other jurisdiction. Except as set forth on Schedule 3.1.1, Buyer and DAH have not received any written notice or assertion within the last three years from any governmental official of any jurisdiction to the effect that Buyer or DAH is required to be qualified or otherwise authorized to do business therein, in which Buyer or DAH, as the case may be, has not qualified or obtained such authorization. Buyer and DAH have previously delivered to Allard complete and correct copies of Buyer's and DAH's articles of incorporation and code of regulations as in effect on the date hereof, and neither Buyer nor DAH is in default in the performance, observation or fulfillment of any provision of their respective articles of incorporation or codes of regulations. 5 3.1.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital stock of Buyer consists solely of 750 shares of Common Stock, without par value ("Buyer Common Shares"). Buyer has issued 100 Buyer Common Shares, of which 100 Buyer Common Shares are outstanding, constituting all of the issued and outstanding shares of capital stock of any class of Buyer. All outstanding Buyer Common Shares have been Validly issued and are fully paid and non-assessable and free of preemptive rights. There are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings; or other commitments or rights of any type relating to the issuance, sale or transfer by Buyer of any securities of Buyer, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of Buyer; and Buyer has no obligation of any kind to issue any additional securities. 3.1.3 AUTHORIZATION. Buyer and DAH each have all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which either of them is a party, perform their respective obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. All necessary corporate action has been taken by Buyer and DAH with respect to the execution and delivery of this Agreement, and the other Transaction Documents to which either of them is a party, and this Agreement and the other Transaction Documents to which either of them is a party, constitute valid and binding obligations of Buyer and DAH, enforceable against Buyer and DAH, as the case may be, in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.1.4 LITIGATION. There is no claim, litigation, action, suit, proceeding, investigation or inquiry, administrative or judicial, pending or, to the knowledge of Buyer or DAH, threatened against Buyer or DAH, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, which might have an adverse effect on their ability to perform any of their obligations under this Agreement or upon the consummation of the transactions contemplated by this Agreement. 3.1.5 BROKERS AND FINDERS. Except as disclosed in Schedule 3.1.5, neither Buyer, DAH nor any of their officers, directors or employees, has engaged any broker or finder or incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses and no broker or finder has acted directly or indirectly for Buyer or DAH in connection with this Agreement or the transactions contemplated hereby. 3.1.6 FINANCING. DAH has discussed the transaction contemplated by this Agreement with its senior lender and its subordinated lender; subject to each such lender's review of the definitive transaction documents (including this Agreement), DAH has no basis to believe that its lenders will not give their respective required consent to the transactions contemplated by this Agreement. 3.2 JOINTLY BY ALLARD AND PRINCIPAL SHAREHOLDERS. Allard and, subject to the limitations of Section 3.3, Principal Shareholders hereby jointly and severally represent and 6 warrant to Buyer and DAH that, except as set forth on Schedule 3.2, the representations and warranties of Allard and Principal Shareholders, and either of them, contained in this Agreement, including those contained in this Section 3.2, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. As used in this Section 3.2, (i) unless stated to the contrary; all representations and warranties which are made to the "Knowledge of Allard" and the Principal Shareholders relate only to ADS, its business, assets and liabilities; (ii) all representations and warranties relate only to the time period from December 1, 1992, to the date of this Agreement when ADS, its business, assets and liabilities were owed by Allard and (iii) when reference is made to ADS as if it were a legal entity, the representation is meant to be with respect to the ADS division of Allard as if ADS were a separate legal entity. As used in this Agreement, "to the Knowledge of Allard" shall mean the knowledge of John R. Allard or Richard Murray after reasonable inquiry made to Robert B. Martin and appropriate members of ADS management or staff. Allard and, subject to the limitations of Section 3.3, Principal Shareholders hereby jointly and severally represent and warrant to Buyer and DAH the following: 3.2.1 CORPORATE ORGANIZATION. Allard is a corporation duly organized, validly existing and in good standing under the laws of the State of New Hampshire, and has all requisite corporate power and authority to own, lease and operate its properties and conduct its business as now being conducted. Allard is duly qualified to do business and in good standing in each jurisdiction listed on Schedule 3.2.1, is not qualified to do business in any other jurisdiction and neither the nature of the business conducted by it nor the property it owns, leases or operates requires it to qualify to do business as a foreign Corporation in any other jurisdiction. Except as set forth on Schedule 3.2.1, Allard has not received any written notice or assertion within the last three years from any governmental official of any jurisdiction to the effect that Allard is required to be qualified or otherwise authorized to do business therein, in which Allard has not qualified or obtained such authorization. Allard has previously delivered to Buyer complete and correct copies of Allard's articles of incorporation and by-laws as in effect on the date hereof, and Allard is not in default in the performance, observation or fulfillment of any provision of either of its articles of incorporation or by-laws. 3.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital stock of Allard consists solely of Sixty (60) shares of Class A Common Stock, no par value and Three Hundred (300) shares of Class B Non-Voting Common Stock, no par value ("Allard Common Shares"); Allard has issued Sixty (60) shares of Class A Common Stock and Allard has issued Two Hundred Seventy (270) shares of Class B Non-Voting Common Stock; all outstanding Allard Common Shares have been validly issued and are fully paid and non-assessable and free of preemptive rights. Schedule 3.2.2 accurately sets forth the names and addresses of, the number of Allard Common Shares held at the date of this Agreement of record and/or beneficially by, and any Allard Common Shares to be issued, sold or otherwise transferred at or prior to the Closing Date to, each and every shareholder of Allard. 7 3.2.3 AUTHORIZATION OF ALLARD AND PRINCIPAL SHAREHOLDERS. Allard has full corporate power and authority to enter into this Agreement, and the other Transaction Documents to which it is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. Each of the Principal Shareholders has all requisite power, authority and legal capacity and is competent to execute and deliver this agreement, and the other Transaction Documents to which he or she is a party, perform his obligations hereunder and thereunder and consummate the transactions contemplated hereby. All necessary and appropriate corporate action has been taken by Allard with respect to the execution and delivery of this Agreement, and the other Transaction Documents to which it is a party. This Agreement constitutes, and the other Transaction Documents to which Allard and Principal Shareholders are parties when executed and delivered by Allard and Principal Shareholders will constitute, valid and binding obligations of Allard and Principal Shareholders, enforceable against Allard and Principal Shareholders in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 3.2.4 are (i) the balance sheets of ADS as at December 31, 1995, 1994 and 1993 and the April 30, 1996 Balance Sheet, (ii) the related statements of income, retained earnings, and cash flows for the years ended December 31, 1995, 1994 and 1993 and the 4 months ended April 30, 1996 (all of such documents referred to collectively as the "Financial Statements"). All of the year-end Financial Statements reflect all year-end adjustments reflected in the audited consolidated financial statements of Allard to the extent such adjustments pertain to ADS. The Financial Statements dated as of April 30, 1996 either (a) reflect the equivalent of any adjustments made in the December 31, 1995 Financial Statements or (b) have footnote disclosure to reflect the absence of such adjustments and the dollar amount of such adjustments had they been made. Each of the Financial Statements, and the financial statements delivered pursuant to Section 6, (i) are true, correct and complete in all material respects, (ii) have been prepared from and are in accordance with the books and records of ADS, (iii) have been prepared using an accrual basis method and LIFO inventory cost flow assumptions, (iv) are in conformity with generally accepted accounting principles applied on a consistent basis for such periods, and (v) fairly present the financial position of ADS in all material respects as of the dates stated and the results of operations and cash flows of ADS for the periods then ended in accordance with such practices. On the date of this Agreement, ADS does not have any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the balance sheets in the Financial Statements or elsewhere in this Agreement. Since April 30, 1996, there has been no material adverse change in the financial condition, operations, business or prospects taken as a whole of ADS from that set forth in the Financial Statements dated as of April 30, 1996 or elsewhere in this Agreement. 3.2.5 [Omitted] 3.2.6 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set forth on Schedule 3.2.6, since December 31, 1995, there has not been: 8 (a) Any material adverse change in the business operations (as now conducted or as presently proposed to be conducted), assets, properties or rights, prospects or condition (financial or otherwise) of ADS or, any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change (a "Material Adverse Effect"); (b) Any material increase in amounts payable by ADS to or for the benefit of, or committed to be paid by ADS: (A) to or for the benefit of (x) any person listed on Schedule 3.2.6(a) (each a "Restricted Employee") or (y) in the aggregate, all shareholders, directors, officers, partners, consultants, agents and employees, in any capacity, of Allard who are not listed on Schedule 3.2.6(b) (the "Non-Restricted Employees") or (B) in any benefits granted under any bonus, stock option, profit sharing, pension, retirement, deferred compensation, insurance, or other direct or indirect benefit plan, payment or arrangement made to, for the benefit of, or with (x) any Restricted Employee or (y) in the aggregate, all Non-Restricted Employees; (c) Any transaction entered into or carried out by ADS other than in the ordinary and usual course of their respective businesses; (d) Any borrowing or agreement to borrow funds; any incurring of any other obligation or liability, contingent or otherwise except current liabilities incurred in the usual and ordinary course of business exceeding at any one time outstanding $10,000; or any endorsement, assumption or guarantee of payment or performance of any loan or obligation of any other individual, firm, corporation or other entity by Allard on behalf of ADS; (e) Any material change made by ADS in the methods of doing business or any change in the accounting principles or practices of Allard with respect to the Financial Statements or the method of application of such principles or practices; 9 (f) Any mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance imposed or agreed to be imposed on or with respect to the Property; (g) Any mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance discharged or satisfied, or any obligation or liability (absolute or contingent) paid, other than current liabilities shown on the April 30, 1996 Balance Sheet and current liabilities incurred and obligations under contracts entered into after such date in the usual and ordinary course of business; (h) Any sale, lease or other disposition of or any agreement to sell, lease or otherwise dispose of any of the properties or assets of ADS, other than sales of finished goods in the usual and ordinary course of business for ADS's scheduled prices; (i) Any purchase of or any agreement to purchase capital assets for an amount in excess of $50,000 for any one such purchase or $100,000 for all such purchases made by Allard on behalf of ADS or any lease or any agreement to lease, as lessee, any capital assets with payments over the term thereof to be made by Allard for ADS exceeding an aggregate of $30,000; (j) Any loan or advance made by Allard on behalf of ADS to any individual, firm, corporation or other entity except for advances not material in amount made in the usual and ordinary course of business to employees; (k) Any modification, waiver, change, amendment, release, rescission or termination of, or accord and satisfaction with respect to, any material term, condition or provision of any contract, agreement, license or other instrument to which ADS is a party, other than any satisfaction by performance in 10 accordance with the terms thereof in the usual and ordinary course of business; (l) Any labor disputes or disturbances materially adversely affecting the business or financial condition of ADS including the filing of any petition or charge of unfair labor practices with the National Labor Relations Board or efforts to effect a union representation election, actual or threatened employee strikes, work stoppages or slow downs; (m) Any delay or postponement (beyond normal practice) by Allard on behalf of ADS of the payment of any accounts payable or other liabilities of ADS; or (n) To the best of the knowledge of Allard and each Principal Shareholder, any other event or condition of any character which has had a Material Adverse Effect or may reasonably be expected to result in a Material Adverse Effect. 3.2.7 UNDISCLOSED LIABILITIES. Except as disclosed on Schedule 3.2.7, ADS has no liability or obligation of any nature (whether liquidated, unliquidated, accrued, absolute, known or unknown, contingent or otherwise and whether due or to become due) except: (a) those set forth or reflected in the April 30, 1996 Balance Sheet which have not been paid or discharged since the date thereof; (b) those arising under agreements or other commitments expressly identified in any Schedule hereto; and (c) current liabilities incurred in or as a result of the conduct of its business in the ordinary and usual course consistent with past practice since April 30, 1996, which are completely and accurately reflected in all material respects on its books and records and which are not inconsistent with the other 11 representations, warranties and agreements of Allard and Principal Shareholders, or either of them, set forth in this Agreement or in the other Transaction Documents (none of which relates to any breach of contract, breach of warranty, tort, infringement, fraud, or violation of law; or arose out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand). 3.2.8 TAXES. Except as set forth on Schedule 3.2.8, Allard has filed all applicable Federal, State and local tax returns relating to the business of ADS. 3.2.9 COMPLIANCE WITH LAW. (a) Each of Allard and the Principal Shareholders is in compliance in all material respects (with respect to the business of ADS) with all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered, by any federal, state, local or foreign court or governmental authority or instrumentality relating to ADS or any of its businesses or properties. (b) Allard is in compliance in all material respects with all federal, state and local laws, ordinances, rules and regulations pertaining to environmental matters, including solid waste disposal, toxic substances, hazardous substances, hazardous materials, hazardous waste, toxic chemicals, pollutants, contaminants and air or water pollution and to the storage, use, handling, transportation, discharge and disposal (including spills and leaks) of gaseous, liquid, semi-solid or solid materials. Allard has not, and to the best knowledge of Allard and Principal Shareholders, no third party has, disposed or discharged any chemicals, oil or solid wastes on any part of the Real Property or any other any property owned; operated, leased or used by ADS. To the best of the knowledge of Allard and the Principal Shareholders there are no underground storage tanks located on any part of the Real Property or any other property owned, operated, leased or used by ADS. (c) Schedule 1.1.6 contains a complete and accurate list of the Permits. Each of the Permits is currently 12 valid and in full force and effect and assignable to Buyer. The Permits constitute all franchises, licenses, permits, consents, authorization, approvals, and certificates of any regulatory, administrative or other agency or body necessary for the conduct of the business of ADS. Neither ADS nor Allard is in violation of any of the Permits and there is no pending or to the best of the knowledge of Allard and Principal Shareholders threatened proceeding which could result in the revocation, cancellation or inability of ADS or Allard to renew or transfer any Permit. (d) To the best of the knowledge of Allard and the Principal Shareholders, except as set forth in Schedule 3.2.9, neither Allard nor any Principal Shareholder is under investigation (with respect to the business of ADS) with respect to, or has been charged with or given notice of any violation of, any applicable law. 3.2.10 PROPRIETARY RIGHTS. Schedule 1.1.7 sets forth all of the Proprietary Rights and Registrations in respect thereof. Other than those Proprietary Rights listed on Schedule 1.1.7, to the best of the knowledge of Allard and the Principal Shareholders, no patent, invention, trade secret, process, proprietary right, proprietary knowledge, know-how, computer software, trademark, name, service mark, trade name, copyright, mark, symbol, logos, franchise, permit, license, sublicense or other such right is necessary for the operation of the business of ADS as the same is currently conducted. None of the Proprietary Rights are registered with any governmental or regulatory authority except as set forth on Schedule 1.1.7. The business of ADS as conducted prior to the Closing Date, the sale by Allard, and ownership by Buyer of any of the Property, was not, is not and will not infringe or be in contravention of any trade name, service mark, patent, trademark, copyright or other proprietary right of any third party. The amount of each of the royalties and license fees presently paid by ADS in the ordinary course of its business is listed in Schedule 2.1.6. 13 Except as set forth on Schedule 3.2.10, ADS is the sole and exclusive owner of all right, title and interest in and to all Proprietary Rights free and clear of all liens, claims, charges, equities, rights of use, encumbrances and restrictions whatsoever. Except as set forth in Schedule 3.2.10, none of the Proprietary Rights: (i) as been hypothecated, sold, assigned or licensed by Allard or to the best knowledge of Allard and Principal Shareholders, any other person, corporation, firm or other legal entity; (ii) infringes upon or violates the rights of any person, firm, corporation, or other legal entity; (iii) is subject to challenge, claims of infringement, unfair competition or other claims; or (iv) to the best knowledge of Allard and Principal Shareholders, is being infringed upon or violated by any person, firm, corporation or other legal entity. Except as set forth in Schedule 3.2.10: (w) Allard nor ADS has given any indemnification against patent, trademark or copyright infringement as to any equipment, materials' products, services or supplies which ADS produces, uses, licenses or sells; (x) no product, process, method or operation presently sold, engaged in or employed by ADS infringes upon any rights owned by any other person' firm, corporation or other legal entity; (y) there is not pending or threatened any claim or litigation against Allard or ADS contesting the right of ADS to sell, engage in or employ any such product, process, method, or operation; and (z) there is not, to the best knowledge of ADS and Principal Shareholders, pending, proposed or threatened, any patent, copyright, trade name, trademark, service mark, invention, device, application or principle, or Registration therefor, which would materially adversely affect the future operation by Buyer of ADS's business after the Closing Date on substantially the same basis as said business was theretofore operated. 3.2.11 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the matters listed on Schedule 3.2.11, neither ADS, the Principal Shareholders (with respect to the business of ADS), is a party to or bound under any and, to the best knowledge of Allard and Principal Shareholders, there is no pending, proposed or threatened regulation, certificate, mortgage, lien, lease, agreement, contract, instrument, law, vote, order, judgment or decree, or any similar restriction not of general application which materially adversely affects, or reasonably could be expected materially adversely to affect (i) the condition, financial or otherwise, of ADS or the Property; (ii) the continued operation by Buyer of the business of ADS after the Closing Date on substantially the same basis as said business was theretofore operated; or (iii) the consummation of the transactions contemplated in this Agreement. 3.2.12 INSURANCE. To the best of the knowledge of Allard and the Principal Shareholders ADS is insured with respect to its property and the conduct of its business in such amounts and against such risks as are sufficient for compliance with law, and for compliance with the terms of each of its contractual commitments (including under each of the Real Property Leases, Personal Property Leases and Contracts). Schedule 3.2.12 is a true, correct and complete list of all insurance policies and bonds in force in which Allard or ADS is named as an insured party, in respect of the business of ADS, or for which ADS has been charged or has paid any premiums. Except as disclosed in Schedule 3.2.12, all such policies or bonds are currently in full force and effect and neither Allard nor ADS has received any notice from any such insurer with respect to the cancellation of any such insurance. Allard will continue all of such insurance in full force and effect up to and including the Closing Date. All premiums due and payable on such policies have been paid. Neither Allard nor ADS is a co-insurer under any term of any insurance policy. 14 3.2.13 BANK ACCOUNTS, DEPOSITORIES, POWERS OF ATTORNEY. Schedule 3.2.13 is a true, correct and complete list of the names and locations of all banks or other depositories in which ADS maintains accounts or safe deposit boxes, and the names of the persons authorized to draw thereon, borrow therefrom or have access thereto. No person or entity holds a power of attorney on behalf of ADS. 3.2.14 REAL PROPERTY. Except as set forth in Schedule 1.1.1, and except with respect to real property leased pursuant to the Real Property Leases listed on Schedule 1.1.2, ADS has no real property. The Property which is real property constitutes all of the real property now used in and necessary for the conduct of the business of ADS as presently conducted. Except as set forth in Schedule 3.2.14, to the best of the knowledge of Allard and Principal Shareholders, all real property, buildings and structures owned or used by ADS and material to the operation of its business is suitable for the purpose or purposes for which it is being used, and is in such condition and repair as to permit the continued operation of said businesses. To the best of the knowledge of Allard and the Principal Shareholders, none of such real property, buildings or structures is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. To the best of Allard's knowledge and the knowledge of the Principal Shareholders, there are no material structural defects in the exterior walls or the interior bearing walls, the foundation or the roof of any plant, building, garage or other such structure owned, leased or used by ADS and the electrical, plumbing and heating systems, and the air conditioning system, if any, of any such plant, building, garage or structure are in reasonable operating condition in light of their age and prior use. To the best of the knowledge of Allard and the Principal Shareholders the utilities servicing the real property owned, leased or used by ADS are adequate to permit the continued operation of the business of ADS and there are no pending or threatened zoning, condemnation or eminent domain proceedings, building, utility or other moratoria, or injunctions or court orders which would materially effect such continued operation. Schedule 3.2.14 lists, and Allard has furnished or made available to Buyer copies of, all engineering, geologic and environmental reports prepared by or for either Allard or ADS with respect to the Real Property and the real property leased pursuant to the Real Property Leases. 3.2.15 PERSONAL PROPERTY. Schedules 1.1.3(a), 1.1.3(b), 1.1.4 and 1.1.5 contain complete and accurate descriptions of, respectively, the Machinery and Equipment, the Tooling and the Inventory, and the Vehicles. Except as set forth in Schedule 3.2.15, and except with respect to personal property leased pursuant to the Personal Property Leases, ADS has good, valid and marketable title to all of its assets and properties which are personal property of every kind, nature and description, tangible or intangible wherever located, including all property and assets which are personal property shown or reflected on the April 30, 1996 Balance Sheet. Schedule 1.1.3 contains a complete and accurate description of all Personal Property Leases to which ADS is party or which ADS uses in its business. To the best of knowledge of Allard and Principal Shareholders, the Property which is personal property constitutes all of the personal property now used in and necessary for the conduct of the business of ADS as presently conducted. The Property is held free and clear of all mortgages, pledges, liens, security interests, encumbrances and restrictions of any nature whatsoever, except as listed on Schedule 3.2.15. 15 No financing statement under the Uniform Commercial Code or similar law naming Allard or ADS as debtor has been filed in any jurisdiction, and neither Allard nor ADS is a party to or bound under any agreement or legal obligation authorizing any party to file any such financing statement, except as listed on Schedule 3.2.15. To the best knowledge of Allard and Principal Shareholders, none of the Machinery or Equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repair. 3.2.16 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.2.16, the operations of ADS meet the requirements of all occupational health and safety acts and all environmental laws and regulations of all federal, state and local governmental or regulatory bodies having jurisdiction over ADS. Without limiting the generality of the foregoing, and by way of example only, except as set forth on Schedule 3.2.16: (a) There has not been, and is not occurring, any Release of any Hazardous Substance on any real property owned, operated, leased or used by ADS. For purposes of this Agreement, the terms "Release" and "Hazardous Substance" shall have the same meanings as those terms are given in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except that for purposes of this Agreement petroleum (including crude oil or any fraction thereof) shall be deemed a Hazardous Substance. (b) ADS has never sent a Hazardous Substance to a site which, pursuant to CERCLA or any similar state law, (A) has been placed, or is proposed to be placed, or, to the best knowledge of Allard or Principal Shareholders, may in the future be placed, on the "National Priorities List" of hazardous waste sites or on any similar list of any federal, state or local governmental agency, including the Comprehensive Environmental Response, Compensation and Liability System list for potential hazardous waste sites, or (B) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (as defined under CERCLA) or to pay for any costs relating to such site. (c) ADS has never been or is currently in violation of any provision of the Toxic Substances Control Act or the regulations promulgated thereunder. 16 (d) ADS is not involved in any suit or has received notice of any claim relating to personal injuries from exposure to Hazardous Substances. 3.2.17 BROKERS, FINDERS. The transactions contemplated herein were not submitted to Allard by any broker or other person entitled to a commission or finder's fee thereon, and were not with the consent of Allard submitted to Buyer by any such broker or other person. Neither Allard nor any of its officers, directors or employees has engaged any broker or finder or incurred or taken any action which may give rise to any liability against itself or the Property for any brokerage fees, commissions, finders fees or similar fees or expenses and no broker or finder has acted directly or indirectly for Allard in connection with this Agreement or the transactions contemplated hereby. No investment banking, financial advisory or similar fees have been incurred or are or will be payable by Allard in connection with this Agreement or the transactions contemplated hereby. 3.2.18 LEGAL PROCEEDINGS, ETC. Except as set forth on Schedule 3.2.18, there is no claim, litigation, action, suit or proceeding, administrative or judicial, filed, pending or threatened against Allard, Principal Shareholders (with respect to the business of ADS), or ADS or involving the Property, this Agreement or the transactions contemplated hereby, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, including any unfair labor practice or grievance, proceedings or claim. To the best knowledge of Allard and Principal Shareholders, there is no basis upon which such claim, litigation, action, suit or proceeding could be brought or initiated. Except as disclosed in Schedule 3.2.18, neither Allard, Principal Shareholders (with respect to the business of ADS), nor ADS is subject to any judgment, order or decree, or, to the best knowledge of Allard and Principal Shareholders, any governmental restriction applicable to Allard, Principal Shareholders (with respect to the business of ADS), or ADS which has a reasonable probability of having a Material Adverse Effect, or which materially adversely affects the ability of ADS to conduct business in any area, or of Buyer to continue the business of ADS as presently conducted. 3.2.19 NO CONFLICT OR DEFAULT. Except as set forth on Schedule 3.2.19, neither the execution and delivery of this Agreement or any other Transaction Document, nor compliance with the terms and provisions hereof or thereof, including the consummation of the transactions contemplated hereby and thereby, will (a) violate in any material respect any statute, regulation or ordinance of any governmental authority, or (b) conflict with or result in the breach of any term, condition or provision of the articles of incorporation or bylaws of Allard or of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument (with respect to the business of ADS) to which Allard or any of the Principal Shareholders, is a party or by which Allard or any of the Principal Shareholders or any part of the Property is or may be bound, or (c) constitute a material default (or an event which with the lapse of time or the giving of notice, or both, would constitute a material default) thereunder, or (d) result in the creation or imposition of any lien, charge or encumbrance, or restriction of any nature whatsoever with respect to any part of the Property, or (e) give to others any interest or rights, including rights of termination, acceleration or cancellation in or with respect to any part of the Property or the business of ADS. 17 3.2.20 LABOR RELATIONS. Schedule 3.2.20 sets forth all collective bargaining or other labor agreements to which ADS or Allard is bound and which covers ADS employees. Allard has previously delivered to Buyer true, correct and complete copies of each such agreement. There is no labor strike, dispute, slowdown or stoppage, or any union organizing campaign, or petition for certification actually pending or, to the best knowledge of Allard and Principal Shareholders, threatened against or involving ADS. Schedule 3.2.20 sets forth all pending grievances and arbitration proceedings against ADS arising out of or under a collective bargaining or other labor agreement. No collective bargaining or other labor agreement is currently being negotiated by Allard on behalf of ADS or by ADS. Neither ADS nor Allard has experienced any work stoppage or other material labor difficulty over the past three years. No agreement which is binding on ADS restricts it from relocating or closing any or all of its operations. 3.2.21 EMPLOYEE BENEFIT PLANS. (a) To the best of the knowledge of Allard and Principal Shareholders except as set forth in Schedule 3.2.21, neither Allard nor ADS, currently sponsors, maintains or contributes, or has within the past 3 years sponsored, maintained or contributed to, to any pension, retirement, profit-sharing, deferred compensation, bonus, stock option or other incentive plan, or any other employee benefit program, arrangement, agreement or understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such employee benefit plan is otherwise exempt from the provisions of ERISA, and whether or not formal or informal, written or oral, and whether or not legally binding. All such plans, funds or programs sponsored, maintained or contributed to by ADS or Allard currently or within the past 3 years, whether or not listed on Schedule 3.2.21, are hereinafter referred to as the "Employee Benefit Plans"). For the purpose of this Section 3.2.21, the term "ADS" shall include all "entities" of ADS and of Allard, whether or not incorporated, with which it would be treated as a single employer for purposes of Sections 414(b), (c) or (m) of the Internal Revenue Code (the "Code"). (b) Full payment has been made of all amounts which ADS or Allard is required, under applicable law or under any Employee Benefit Plan or any agreement 18 relating to any Employee Benefit Plan to which it is a party, to have paid as contributions to or benefits under any Employee Benefit Plan as of the last day of the most recent fiscal year of such Employee Benefit Plan ended prior to the date hereof. ADS has made adequate provision in its financial statements for liabilities to meet current contributions or benefit payments. (c) ADS and Allard have each performed all obligations required to be performed by it under the Employee Benefit Plans. Neither ADS nor Allard has engaged in any transaction with respect to the Employee Benefit Plans which would subject either of them, Buyer or DAH to a tax, penalty or liability for a prohibited transaction under section 406, 407 or 502(i) of ERISA or Section 4975 of the Code, nor have either of Allard's or ADS' directors, officers, partners, employees or agents, to the extent they or any of them are fiduciaries with respect to such Employee Benefit Plans, breached any of their responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or which would result in any claim being made under or by or on behalf of any such Employee Benefit Plans by any party with standing to make such claim. Neither ADS nor Allard will have any plan or commitment, whether formal or informal, written or oral, and whether or not legally binding, to modify or change any Employee Benefit Plan in any material manner prior to the Closing Date. Allard, to the best of the knowledge of Allard and Principal Shareholders, ADS to the best of the knowledge of Allard and Principal Shareholders and any "administrator(s)" (as described in Section 3(16)(A) of ERISA) of the Employee Benefits Plans have complied in all material respects with the applicable requirements of ERISA, the Code and all other statutes, orders, rules or regulations, specifically including material compliance with all reporting and disclosure requirements of Part 1 of Title 1 of ERISA and of the Code in a timely and accurate manner, and no penalties have been or will be imposed, nor is Allard, ADS or any administrator liable for any penalties imposed, under ERISA, the Code or otherwise with respect to the Employee Benefit Plans or any related trusts. Neither ADS nor Allard 19 is delinquent in the payment of any federal, state or local taxes with respect to the Employee Benefit Plans. There is no pending litigation, arbitration, or disputed claim, settlement adjudication or proceeding with respect to the Employee Benefit Plans, and none of Allard, to the best of the knowledge of Allard and Principal Shareholders, ADS to the best of the knowledge of Allard and Principal Shareholders or any administrator is aware of any threatened litigation, arbitration or disputed claim, adjudication proceeding, or any governmental or other proceeding, or investigation with respect to the Employee Benefit Plans or with respect to any fiduciary or administrator thereof (in their capacities as such), or any party-in-interest thereto (with respect to their relationship as such). There is no "defined benefit plan" within the meaning of Section 414(j) of the Code or Section 3(35) of ERISA to which either ADS or Allard has been a party or has been required to make any contributions at any time during the last ten years. There is no "multiemployer plan" within the meaning of Section 3(37) of ERISA to which either ADS or Allard has been a party or has been required to make any contributions at any time during the last ten years. (d) Allard has delivered or caused to be delivered to Buyer and DAH prior to the Closing, true, accurate and complete copies of (A) all Employee Benefit Plans and any related trust agreements, custodial agreements, investment management agreements, insurance contracts or policies, and administrative service contracts, all as in effect, together with all amendments thereto which will become effective at a later date; (B) the latest Summary Plan Description and any modifications thereto for each Employee Benefit Plan requiring same under ERISA; (C) the Summary Annual Report for the current and prior fiscal years for each Employee Benefit Plan requiring same under ERISA; (D) each Form 5500 and/or Form 990 series filing (including required schedules and financial statements) for the current and prior fiscal years for each Employee Benefit Plan required to file such form; and (E) the most recent actuarial evaluation, analysis or other report issued with respect to any Employee Benefit Plan. None of Allard, ADS or any officer, partner, 20 employee representative or agent of either of them, has made any written or oral representations or statements to any current or former employees, dependents, participants or beneficiaries or other persons which are inconsistent in any material manner with the provisions of these documents. (e) With respect to any of ADS's employee welfare plans (as defined in Section 3(1) of ERISA and including those Employee Benefits Plans which qualify as such) which are "group health plans" under Section 498OB of the Code and Section 607(1) of ERISA and related regulations (relating to the benefit continuation rights imposed by the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as amended to date), since such time as Allard has owned ADS, there has been timely compliance in all material respects with all requirements imposed thereunder, as and when applicable to such plans, so that Allard has not (or will not incur any) loss, assessment, penalty, loss of federal income tax deduction or other sanction, arising on account of or in respect of any failure to comply with any COBRA benefit continuation requirement, which is capable of being assessed or asserted directly or indirectly against Allard or ADS, or against Buyer or DAH or any of their respective subsidiaries or other member of Buyer's corporate control group, with respect to any such plan. (f) No Employee Benefit Plan maintained by Allard or ADS which is a "welfare plan" within the meaning of Section 3(1) of ERISA provides benefits to employees after termination of employment, except as required by Section 4980B of the Code. 3.2.22 CONTRACTS AND COMMITMENTS. Schedule 3.2.22 is a list of all of the Contracts to which ADS is a party and which involve the payment by or to ADS in the aggregate of $50,000 or more during any year, and Allard has previously delivered to Buyer correct and complete copies of each such Contract. The Real Property Leases, the Personal Property Leases and the Contracts listed on Schedule 3.2.22, taken together, constitute all of the contracts, agreements, contract rights, leases, license agreements, franchise rights and agreements, policies, purchase and sales orders, quotations and executory commitments, instruments, guaranties, indemnifications, arrangements, obligations and understandings (written or oral), 21 involving the payment by or to ADS, in the aggregate of $50,000 or more during any year, necessary to the conduct of the business of ADS as conducted by ADS. All of the Real Property Leases, the Personal Property Leases and the Contracts are valid and binding, in full force and effect and enforceable against ADS in accordance with their respective provisions. Neither Allard nor ADS has assigned, mortgage pledged, encumbered, or otherwise hypothecated any of its right, title or interest under any Real Property Lease, any Personal Property Lease, or any Contract. Neither Allard nor ADS (nor, to the best knowledge of Allard and Principal Shareholders, any other party thereto) is in violation of, in default in respect of, nor has there occurred an event or condition which, with the passage of time of giving of notice (or both) would constitute a violation or default of, any Real Property Lease, any Personal Property Lease, or any Contract; and, to the best knowledge of Allard and Principal Shareholders, there are no facts or circumstances which would reasonably indicate that ADS (or any other party) will be or may be in violation of or in default in respect of any Real Property Lease, any Personal Property Lease, or any Contract, subsequent to the date hereof. No notice has been received by Allard or ADS claiming any such default by ADS or indicating the desire or intention of any other party thereto to amend, modify, rescind or terminate the same. 3.2.23 ACCOUNTS RECEIVABLE, ETC.. All of the Receivables of ADS are set forth on Schedule 1.1.9, together with the value thereof. All of the Investments are set forth on Schedule 1.1.10, together with the value thereof. All of the Deposits and prepaid expenses of ADS are set forth on Schedule 1.1.11, together with the value thereof. All such Receivables, Investments, Deposits and Prepaid Expenses, together with any additional Receivables, Investments, Deposits and Prepaid Expenses arising between the date hereof and the Closing Date (in each case net only of such allowance for doubtful accounts as is included on the April 30, 1996 Balance Sheet), (a) are or will be valid and subsisting, (b) represent or will represent sales actually made, (c) arose or will arise in the ordinary and usual course of the business of ADS, (d) to the extent not collected prior to the Closing Date, will be collectible according to their terms within 90 days after the date of the initial invoice therefor subject to the allowance for doubtful accounts included on the April 30, 1996 Balance Sheet and (e) are not and will not be subject to any counterclaim, set-off or defense nor any lien, charge or encumbrance of any nature. There has not been any material adverse change in the collectibility of the Receivables of ADS since April 30, 1996. 3.2.24 INVENTORIES. As of July 22, 1996, Schedule 1.1.4 completely and accurately lists all of the raw materials owned by ADS, and the value thereof. Except as set forth in Schedule 3.2.24, in all material respects, all of the raw materials of ADS consists of a quality and quantity usable and saleable in the ordinary and usual course of business, except for items of obsolete materials and materials of substandard quality, all of which have been written off, written down or reserved for on the books of ADS to net realizable prior to April 30, 1996. All Inventory not written off has been priced at the lower of cost or market on a LIFO basis. The quantities of each type of Inventory (whether raw materials, work-in-process, or finished goods) are not excessive in all material aspects, consistent with past business practice, but are 22 reasonable and warranted in the present circumstances of ADS. All work-in-process and finished goods Inventory is free of any defect or other deficiency or, to the extent there is a defect or other deficiency, there is a valid claim by ADS against the manufacturer or supplier thereof for an amount adequate to fully compensate ADS therefor. 3.2.25 BACKLOG. All unfilled orders to purchase goods of ADS are set forth in Schedule 3.2.25 and are firm and binding commitments (subject to cancellation rights set forth therein) of the respective purchasers (assuming that such purchaser has properly authorized by all requisite corporate or, if not a corporation, by all other requisite action and has properly executed and delivered such purchase order, which, to the best knowledge of Allard and the Principal Shareholders, is the case) to purchase the goods indicated. 3.2.26 BOOKS OF ACCOUNT: RECORDS. Except as disclosed in Schedule 3.2.26, the general ledgers, books of account and other financial records of ADS are complete and correct, have been maintained in accordance with good business practices and the matters contained therein are appropriately and accurately reflected in the Financial Statements. 3.2.27 MANAGERS, EMPLOYEES AND COMPENSATION. Schedule 3.2.27 sets forth the name of all managers of ADS, their respective terms of office, the total salary, bonus payments, fringe benefits and perquisites each received in each of the last 3 fiscal years ended December 31, 1995, and changes to the foregoing which have occurred since December 31, 1995; such Schedule also lists and described the current base salary, bonus payments, fringe benefits and perquisites of any other employee, agent or representative of ADS whose total current salary, bonus or other compensation exceeds $50,000 annually during any of the last 3 fiscal years ended December 31, 1995, and changes to the foregoing since December 31, 1995. There are no other material forms of compensation paid to any such manager or employee of ADS. The provisions for wages and salaries accrued on the April 30, 1996 Balance Sheet are adequate for salaries and wages, including accrued vacation pay, for the period up through the date thereof, and ADS has accrued on its books and records all obligations for wages and salaries and other compensation to its employees, including, but not limited to, vacation pay and sick pay, and all commissions and other fees payable to agents, salesmen and representatives. Allard has filed any and all payroll tax returns, and paid all payroll taxes due for any and all ADS employees, due through the Closing Date. Except as set forth on Schedules 3.2.27 and 3.2.29, ADS has not become obligated, directly or indirectly, to any shareholder, director, officer or partner of Allard or any member of their families, except for current liability for employment compensation. Except as set forth on Schedule 3.2.27, no shareholder, director, officer, partner, agent or employee of Allard holds any position or office with or has any financial interest, direct or indirect, in any supplier, customer or account of, or other outside business which has transactions with ADS. Neither Allard, nor ADS, nor, to the best knowledge of Allard and Principal Shareholders, any third party, has taken any action with respect to any shareholder, director, officer, partner, employee or representative of Allard to attempt to induce or which would influence any such person not to become associated with Buyer from and after the Closing Date or from serving Buyer in a capacity similar to the capacity presently held. No employee of ADS, to the best 23 knowledge of Allard and Principal Shareholders, has a present intention to leave the employ of ADS or has taken any action directed towards leaving the employ of ADS. Except as set forth on Schedule 3.2.27, to the best knowledge of Allard and Principal Shareholders, no former employee of Allard is currently or intends to enter into competition with the business of ADS. 3.2.28 CREDIT TERMS: PRODUCT WARRANTIES. SCHEDULE 3.2.28 sets forth all the terms and conditions of credit and discounts given by ADS to its customers in the usual and ordinary course of its business and a list of all transactions pending where there is a material departure therefrom. Also set forth on such Schedule are the terms and conditions of all product or service warranties and guarantees given by ADS. The aggregate amount of losses and expenses incurred by reason of allowances, customer dissatisfaction or liabilities arising under such warranties and guarantees were not materially significant during the period beginning on December 1, 1992 and ending on December 31, 1995 and there has been no materially adverse change in that experience since December 31, 1995. Except as set forth on such Schedule, ADS has conducted all qualification inspections and quality conformance inspections required by the specifications for products of ADS included on qualified products lists in accordance with the requirements of such specifications, and all products shipped have been in conformance with such specifications. 3.2.29 CONTRACTS WITH AFFILIATES. Any contract, commitment, lease, permit or other instrument, agreement, understanding or obligation (written or oral) between ADS and any affiliate of Allard (including Allard and any Principal Shareholder) is the equivalent of an "arms-length" transaction with a third party, and is described on Schedule 3.2.29 hereto. 3.2.30 GOVERNMENT CONTRACTS. (a) For purposes of this Section 3.2.30, the term "Government" means any agency, division, subdivision, audit group, or procuring office of the federal government, including the employees or agents thereof; the term "Transferor" means ADS and its subsidiaries, divisions, affiliates, joint venturers, agents, employees, officers and directors; the term "Government Contract" means any prime contract, subcontract, basic ordering agreement, letter contract, purchase order or delivery order of any kind, including all amendments, modifications 24 and options thereunder or relating thereto, between the Transferor and any of the Government, any prime contractor of the Government, any subcontractor of such a prime contractor or any subcontractor of another subcontractor, however far removed from the prime contractor such subcontractor may be, (A) currently in force; (B) which, within the three years preceding the date of this Agreement, expired or were terminated; or (C) for which final payment was received within the three years preceding the date of this Agreement; and the term "Bid" means any outstanding quotation, bid or proposal submitted by Transferor to the Government, any proposed prime contractor of the Government, or any proposed subcontractor. (b) Schedule 3.2.30 contains a true and complete list of all Bids which involve or can be expected to involve aggregate consideration in excess of $100,000. (c) Except as set forth in Schedule 3.2.30, with respect to any Government Contract or Bid, to the best of the knowledge of Allard and Principal Shareholders, the Transferor has complied with and expects to comply with all material terms thereof, all certifications and representations of Transferor with respect thereto, and all statutes and regulations applicable thereto. (d) Except as set forth in Schedule 3.2.30, (A) no show cause notices, cure notices, or terminations have been issued against the Transferor with respect to any Government Contract; (B) no negative determinations of responsibility have been issued against the Transferor with respect to any Bid and (C) none of the Government, any prime contractor nor any subcontractor has notified the Transferor, either orally or in writing, that it is in breach or violation of any provision of any Government Contract, any certification or representations with respect thereto or any statutes and regulations applicable thereto. (e) The Transferor possesses all necessary security clearances and permits for the execution of its 25 obligations under any Government Contracts and Bids. The Transferor has never been denied a security clearance. (f) The Transferor is not undergoing and has not undergone any audit, and has no knowledge or reason to know of any basis for impending audits in the future, arising under or relating to any Government Contract except as set forth in Schedule 3.2.30. (g) The Transferor has entered into no financing arrangements with respect to the performance of any current Government Contract except as set forth in Schedule 3.2.30. 3.2.31 SOLVENCY. The total assets of Allard and each of the Principal Shareholders exceed their respective total liabilities; and Allard and each of the Principal Shareholders are able to perform their respective financial obligations as performance thereof becomes due. 3.2.32 ALLOCATIONS. Those costs which, during the period January 1, 1993 through April 30, 1996, have been allocated by Allard to ADS, as set forth in Schedule 3.2.32, equal or exceed the true cost to Allard, and all such identifiable costs have been allocated to ADS. Schedule 3.2.32 sets forth such allocations for each year 1993, 1994 and 1995, and for the 4 months ended April 30, 1996 as disclosed on the April 30, 1996 Balance Sheet. 3.2.33 COMPLETE DISCLOSURE. No representation or warranty made by Allard or any of the Principal Shareholders in this Agreement, and no exhibit, schedule, statement, certificate or other writing furnished to Buyer by or on behalf of Allard or any Principal Shareholders pursuant to this Agreement or in connection with the transactions contemplated hereby or thereby, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein not misleading. 3.2.34 REPETITIVE DISCLOSURE. To the extent that the Buyer or DAH or Allard have made any disclosure on any schedule to this Agreement, such disclosure shall be considered to be made for purposes of this Agreement notwithstanding that such disclosure is not made on all applicable schedules. 3.2.35 CLAIMS. Allard shall not be liable to make any payment to the Buyer or DAH for any damage, loss. liability, cost, penalty, fine, assessment or expense resulting or arising from or incurred in connection with any misrepresentation, breach of warranty or nonfulfillment or nonperformance of any agreement, term or condition on the part of Allard or any misrepresentation in or omission from any schedule, certificate or other instrument 26 furnished to the Buyer or DAH under this Agreement until their aggregate liability under Section 3.2 exceeds $100,000. 3.3 INDEMNIFICATION BY PRINCIPAL SHAREHOLDERS. To the extent specified in this Section 3.3, the Principal Shareholders hereby indemnifies DAH and Buyer for breach of any warranty or representation of Allard or the principal Shareholders in this Agreement. Such indemnity shall be limited and shall occur as follows: 3.3.1 In the event DAH or Buyer has any claim for breach of warranty or representation of Allard or the Principal Shareholder, DAH or Buyer shall give notice to Allard and the Principal Shareholders of such breach and the specifics thereof prior to the commencement of any proceeding pursuant to Section 7.3; 3.3.2 Not less than 10 days following the notice described in Section 3.3.1, DAH or Buyer may commence an arbitration against Allard pursuant to Section 7.3; 3.3.3 Subject to the obligations of the Principal Shareholders pursuant to this Section 3.3, no Principal Shareholder need be a party to or otherwise participate in the Arbitration. 3.3.4 In the event that any award is made against Allard in the Arbitration conducted pursuant to Section 7.3, and the amount of such Award is not paid to DAH or Buyer in immediately available funds within 30 days of the Award, each of the Principal Shareholders shall pay to DAH or Buyer as the case may be a portion of the Award, to the extent of and amount equal to the sum of (i) such amount as is received by such Principal Shareholder pursuant to the Covenant Not to Compete and (ii) the aggregate amount of distributions received by such Principal Shareholder after the Closing Date in respect of their Allard Common Shares, other than distributions directly related to the payment of federal or state taxes arising out of the transaction contemplated by this Agreement, provided, however, each Principal Shareholder shall only be liable to DAH or Buyer based on his percentage of distributions and payments received under the Covenant Not to Compete compared to total distributions and payments received under the Covenant Not to Compete by all Principal Shareholders. Each Principal Shareholder acknowledges and agrees that he shall be bound by the Award in the Arbitration as if he had been named a party to the Arbitration and will not contest his obligation as a result of not being a party to the Arbitration. 3.3.5 Should any Principal Shareholder not make payment of the amount so determined pursuant to Section 3.3.4 within 90 days after the entry of the Award, the arbitrator may enter an Award against such Principal Shareholder in such amount. 3.4 CLAIMS BASED ON REPRESENTATIONS AND WARRANTIES. The recourse by DAH and Buyer against Allard and the Principal Shareholders or by Allard and the Principal Shareholders against DAH and the Buyer for any breach of the representations and warranties set forth in Sections 3.1 and 3.2 shall be limited to prior to May 31, 1998, except for matters as to which notification has been given prior to May 31, 1998. 27 4. COVENANTS. 4.1 COVENANTS OF BUYER. 4.1.1 PAYMENT AND PERFORMANCE OF ASSUMED LIABILITIES. From and after the closing Date, buyer shall pay and perform the liabilities issued pursuant to Section 2.1 in the ordinary course of its business in accordance with Buyer's standard business practices. 4.1.2 PAYMENT FOR COVENANT NOT TO COMPETE. Subject to the satisfaction of each of the conditions precedent set forth in Section 4.2, DAH shall pay to Principal Shareholders its consideration for the covenants not to compete delivered to Buyer and DAH pursuant hereto by payment of 36 equal installments of $55,555.55, on the first business day of each calendar month for the 36 months following the Closing Date. 4.1.3 USE OF NAME. After the Closing Date, Buyer and ADS shall not use the name "Allard" in connection with the business of ADS. 4.1.4 COVENANT AGAINST DISCLOSURE. Each of DAH and Buyer agree not to (a) disclose to any person, association, firm, corporation or other entity (other than Allard or those designated in writing by Allard) in any manner, directly or indirectly, any information or data relevant to the business of Allard (other than ADS), or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than Allard or those designated in writing by Allard) to use, in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4.1.4. 4.1.5 COVENANT AGAINST HIRING. [deleted] 4.1.6 HOLD HARMLESS. DAH and Buyer agree to indemnify and hold harmless Allard from any liabilities to third parties arising from the operations or business of ADS on and after the consummation of the transactions contemplated herein on the Closing Date, except to the extent caused by the actions, gross negligence or willful misfeasance of Allard. 4.1.7 DUTY TO COLLECT ACCOUNTS RECEIVABLES. Buyer and DAH shall use their best efforts to collect accounts receivables outstanding at the Closing Date; As used in this Section 4.1.7, "best efforts" shall be deemed to have been used so long as Buyer continues the accounts receivable collection practices used by ADS prior to the date of this Agreement. 4.1.8 EMPLOYEES. From and after the Closing Date, Buyer and DAH shall employ substantially all of the current employees of the ADS division, subject to normal management prerogatives to review performance and terminate employment as necessary or appropriate for the business. The Buyer and DAH shall compensate such employees at substantially the same level of compensation in effect for such employees. Buyer and DAH will 28 continue normal fringe benefits for such employees subject to the integration of such fringe benefits with Buyer's and DAH's current programs. 4.2 COVENANTS OF ALLARD AND THE PRINCIPAL SHAREHOLDERS. 4.2.1 CHANGE OF NAME: USE OF NAME. ALLARD shall grant any consents and take any other and further action, all at its own expense, requested by Buyer to enable Buyer to use, reserve or register the names "ADS" and "Aerospace Display Systems", and any other trademark or trade style or name presently used by ADS, for the exclusive use of Buyer. After the Closing Date, Allard shall discontinue use of the names "ADS" and "Aerospace Display Systems". 4.2.2 COVENANT AGAINST DISCLOSURE. Each of Allard and each Principal Shareholder agree not to (a) disclose to any person, association, firm, corporation or other entity (other than Buyer or those designated in writing by Buyer) in any manner, directly or indirectly, any information or data relevant to the business of ADS, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than Buyer or those designated in writing by Buyer) to use, in any manner, directly or indirectly, any such information or data,' excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4.2.2. 4.2.3 COVENANT AGAINST HIRING. Each of Allard and the Principal Shareholders understand that it is essential to the successful operation of the business to be acquired hereunder that Buyer retain substantially unimpaired ADS's operating organization. Each of Allard and the Principal Shareholders agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of Allard not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, neither ADS nor any of the Principal Shareholders shall, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at any time during the 12 months preceding the Closing Date an employee, partner, representative, or manager of ADS. Provided, however, if the Buyer and Robert G. Martin sign a three (3) year employment agreement and thereafter Buyer terminates Robert G. Martin other than "for cause" and does not compensate him for the three (3) year period from the Closing, then Allard and the Principal Shareholders shall have the right, after such termination, to employ Robert G. Martin. 4.2.4 INJUNCTIVE RELIEF. Each of Allard and the Principal Shareholders acknowledges and agrees that Buyer's remedy at law for any breach of any of Allard's or such Principal Shareholders obligations under Subsections 4.2.2 or 4.2.3 hereof would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in a proceeding which any be brought to enforce any provision of Subsections 4.2.2 or 4.2.3 without the necessity of proof of actual damage. The rights and remedies conferred upon 29 Buyer under this Section 4.2.4, elsewhere in this Agreement, or by any instrument or law shall be cumulative and may be exercised singularly or concurrently. 4.2.5 CONDUCT OF BUSINESS OF ALLARD PRIOR TO CLOSING DATE. Each of Allard and the Principal Shareholders agrees that on and after the date hereof and prior to the Closing Date: (a) The business and operations, activities and practices of ADS shall be conducted only in the ordinary course of business and consistent with past practice; (b) No change shall be made in the articles of incorporation or bylaws of Allard, except as is necessary to comply with Section 4.2.1 hereof; (c) No change shall be made in the number of shares of authorized or issued capital stock of Allard; nor shall any option, warrant, call, right, commitment or agreement of any character be granted or made by Allard relating to its equity; (d) [deleted] (e) Neither Allard nor any Principal Shareholder shall, directly or indirectly, solicit or encourage (including by way of furnishing any non-public information concerning the business, properties or assets of ADS), or enter into any negotiations or discussions concerning, any Acquisition Proposal (as defined below). Allard and any Principal Shareholder will notify Buyer promptly by telephone, and thereafter promptly confirm in writing, if any such information is requested from, or any Acquisition Proposal is received by Allard or such Principal Shareholder. As used in this Agreement, "Acquisition Proposal" shall mean any proposal received by Allard or any Principal Shareholder prior to the Closing Date for a merger or other business combination involving ADS or for the acquisition of, or the acquisition of a substantial equity interest in, or any material part of the assets of, ADS other than the one contemplated by this Agreement. (f) Except as set forth in Schedule 4.2.5(f), ADS will not, and Allard will not cause or permit ADS to: 30 (i) incur, become subject to, or suffer, or agree to incur, become subject to or suffer, any obligation or liability (absolute or contingent) except current liabilities incurred, and obligations under contracts entered into, in the ordinary course of business; (ii) discharge or satisfy any lien or encumbrance or pay any obligation or liability (absolute or contingent) other than liabilities payable in the ordinary course of business; (iii) mortgage, pledge or subject to lien, charge or any other encumbrance, any of the Property or agree so to do; (iv) sell or transfer or agree to sell or transfer any of its assets, or cancel or agree to cancel any debt or claim, except in each case in the ordinary course of business; (v) consent or agree to a waiver of any right of substantial value; (vi) enter into any transaction other than in the ordinary course of its business; (vii) without the express written consent of Buyer, increase the rate of compensation payable or to become payable by it to any Restricted Employee over the rate being paid to such Restricted Employee at April 30, 1996; (viii) increase the rate of compensation payable or to become payable by it to any Non- Restricted Employee over the rate being paid to such Non-Restricted Employee at April 30, 1996, other than in the ordinary course of business and in accordance with ADS's past practice; (ix) terminate any contract, agreement, license or other instrument to which it is a party; 31 (x) through negotiation or otherwise, make any commitment or incur any liability or obligation to any labor organization; (xi) without the express written consent of Buyer, make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Restricted Employee; (xii) make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Non-Restricted Employee, other than in the ordinary course of business and in accordance with ADS's practice; (xiii) without the express written consent of Buyer, directly or indirectly pay or make a commitment to pay any severance or termination pay to any Restricted Employee; (xiv) directly or indirectly pay or make a commitment to pay any severance or termination pay to any Non-Restricted Employee, other than in the ordinary course of business and in accordance with ADS's past practice; (xv) introduce any new method of management, operation or accounting with respect to its business or any of the assets, properties or rights applicable thereto; (xvi) offer or extend more favorable prices, discounts or allowances than were offered or extended regularly on and prior to April 30, 1996, other than in the ordinary course of business; (xvii) [Omitted] (xviii) hire any employee earning a wage or salary of more than $50,000 per year. 32 (g) Allard and each of the Principal Shareholders will use their respective best efforts to preserve ADS's business organization intact, to keep available to ADS the present service of ADS's employees, and to preserve for ADS the good will of its suppliers, customers and others with whom business relationship exist; and (h) Neither Allard nor any of the Principal Shareholders will take, agree to take or permit to be taken any action or do or permit to be done anything in the conduct of the business of ADS, or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement or which would cause any of the representations or warranties of Allard or the Principal Shareholders contained herein to be or become untrue in any material respect. 4.2.6 INSPECTION OF BOOKS AND RECORDS. From the date of this Agreement until the Closing Date, Allard shall make or cause to be made available to Buyer for examination the Property and other materials such as books of account, contract, agreements, commitments, records and its documents directly relating to ADS and its business and shall permit Buyer and its representatives, attorneys, accountants and agents to have access to and to copy, at Buyer's expense, the same at all reasonable times. In addition, Allard shall make, or cause to be made, available to Buyer and its representatives, attorneys, accountants and agents the Property and all of the above described records for any environmental compliance audit, any environmental site assessment (including soil, groundwater and/or other testing) and any other physical inspection which Buyer may elect to conduct at its own expense. 4.2.7 FURTHER ASSURANCES. On and after the Closing Date, ADS and the Principal Shareholders shall prepare, execute and deliver, at their expense, such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action as Buyer shall reasonably request at any time or from time to time in order to perfect, confirm or evidence in Buyer title to all or any part of the Property or to consummate, in any other manner, the terms and conditions of this Agreement. 4.2.8 PRESS RELEASES AND ANNOUNCEMENTS. Neither ADS, any Principal Shareholder, Buyer nor DAH shall issue any press release or announcement relating to the subject matter of this Agreement without the prior written approval of the other parties hereto; PROVIDED, HOWEVER that ADS, any Principal Shareholder, Buyer or DAH may make any public disclosure he or it believes in good faith is required by law (in which case he or it will advise the other parties hereto prior to making the disclosure). On the Closing Date, Allard, the Buyer 33 and DAH will issue mutual public announcements and/or press releases announcing the transaction contemplated by this Agreement. 4.2.9 BANKRUPTCY. Allard agreed on and after the date of this Agreement (i) neither Allard nor any Principal Shareholder shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to any of them or seeking to adjudicate any of them bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to any of them or for all of any substantial part of any of their assets; (ii) neither ADS nor any Principal Shareholder shall make a general assignment for the benefit of its creditors; (iii) no case, proceeding or other action of a nature referred to in clause (i) above shall be commenced by any person which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or discharged for a period of 60 days; (iv) no case, proceeding or other action shall be commenced by any person seeking issuance of a warrant of attachment, execution distraint or similar process against all or any substantial part of the assets of Allard or any Principal Shareholder which results in the entry of an order for any such relief; and (v) neither ADS nor any Principal Shareholder shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), (iii), or (iv) above. 4.2.10 DELIVERY OF FINANCIAL STATEMENTS. No later than July 31, 1996, Allard and the Principal Shareholders shall deliver to Buyer and DAH the balance sheet of ADS as at June 30, 1996 and the related statements of income, retained earnings and cash flows for the year to date then ended (the "Second Quarter Financial Statements") and which shall be true, correct and complete, shall have been prepared from and are in accordance with the books and records of ADS and Allard and shall have been prepared in conformity with generally accepted accounting principles applied on a consistent basis for such periods using an accrual basis method, reflect sufficient reserves for asserted and potential products liability claims, and fairly present the financial condition of ADS as of the dates stated and the results of operations of ADS for the periods then ended in accordance with such practices. The Second Quarter Financial Statements shall upon delivery to Buyer become part of the Financial Statements as defined herein for all purposes hereof. 4.2.11 TRADE SECRETS AND CONFIDENTIAL KNOW-HOW. Between the date hereof and the Closing Date, Allard and the Principal Shareholders and their representatives shall, upon request by Buyer, reduce to writing all trade secret information or other know-how of a business or technical nature which is now used in or which is useful for the present or anticipated future business of ADS, such writing to be confidential and afforded such protection and confidential treatment as Buyer shall reasonably request. 4.2.12 SALES TAXES, UNEMPLOYMENT INSURANCE, ETC. Without limiting any other term hereof, Allard shall pay all sales taxes and unemployment insurance premiums to be paid in respect of ADS and the Property through the Closing Date. 34 4.2.13 INDEMNITY REGARDING BULK SALES, ETC. Allard hereby agrees to indemnify and hold harmless DAH and Buyer from any claims, costs or losses incurred as a result of the failure of Allard or ADS to comply with any and all requirements of sales tax and bulk sales laws and regulations arising under Pennsylvania, Arizona, New Hampshire and any other jurisdiction in connection with the transactions contemplated herein, including all pre-closing notice, payment and receipt requirements of Pennsylvania Reg. 32 and Arizona Reg. Sec. 42-119, in connection with the transactions contemplated by this Agreement. 4.2.14 WARRANTY WORK AFTER CLOSING DATE. Allard shall reimburse Buyer for Buyer's actual direct cost of material and labor incurred in respect of any warranty work completed by Buyer pursuant to its liabilities assumed under Section 2.1.5. No other costs, such as SG&A, overhead, or other charges, are to be reimbursed by Allard. 4.2.15 USE OF NAME. After the Closing Date, Buyer and ADS shall not use the name "Allard" in connection with the business of ADS. 4.2.16 HOLD HARMLESS. Allard and Principal Shareholders agree to indemnify and hold harmless DAH and Buyer from any liabilities to third parties arising from the operations or business of ADS at any time prior to the consummation of the transactions contemplated herein on the Closing Date, except to the extent caused by the actions, gross negligence or willful misfeasance of DAH or Buyer. 5. CLOSING AND CONDITIONS PRECEDENT. 5.1 CLOSING DATE. The date upon which the transactions contemplated hereby shall become effective (the "Closing Date") shall be the date, no later than September 23, 1996, upon which each of the conditions precedent set forth in Sections 5.2 and 5.3 shall have been satisfied or waived pursuant to the respective terms thereof. 5.1.1 CONDITIONS. On or before September 11, 1996, DAH by giving notice to Allard, DAH may extend the Closing Date pursuant to this Agreement to and including October 16, 1996. In the event that such notice is given by DAH, the Purchase Price shall be increased by the sum of $100,000.00 which amount shall be payable to Allard at the Closing in immediately available funds. 5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF DAH AND BUYER. Each and every obligation of DAH and Buyer to be performed on the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions (unless waived in writing by DAH and Buyer): Allard shall have delivered to Buyer each of the following, in each case duly and properly executed (if appropriate) and in form and substance reasonably satisfactory to the Buyer: 35 5.2.1 Good and sufficient assignments of each Real Property Lease, conveying all of Allard's right, title and interest in and to such Real Property Lease, free and clear of all mortgages, pledges, liens, security interest, encumbrances, restrictions and claims of any nature whatsoever, except those listed on Schedule 3.2.14; together with recordable memoranda thereof if requested by Buyer. 5.2.2 Written consents of the lessors under each Real Property Leases to the assignment of such Real Property Leases, with no adverse condition attached, and estoppel and non-disturbance agreements of such lessors. 5.2.3 A good and sufficient General Conveyance, Assignment and Bill of Sale, conveying, selling, transferring and assigning to Buyer title to all of the Property free and clear of all security interests, liens, charges, encumbrances or equities whatsoever, except those listed on Schedule 3.2.15. 5.2.4 Motor Vehicle Certificates of Title to each of the Vehicles, endorsed for transfer to Buyer. 5.2.5 Good and sufficient assignments of each of the Personal Property Leases and each of the Contracts in each case together with the written consents of all parties necessary in order to transfer all of Allard's rights thereunder to Buyer. 5.2.6 Copies of each of the Permits, together with evidence satisfactory to Buyer that the same are in full force and effect, and (to the extent requested by Buyer) evidence that such permits are eligible for immediate transfer to Buyer. 5.2.7 The books and records described in Section 1.1.15; each of the Financial Statements described in Section 3.2.4; the Second Quarter Financial Statements to be delivered pursuant to Section 4.2.10; and each policy of insurance described in Section 3.2.12, together with evidence that such policies are in force on the Closing Date. 5.2.8 A covenant not to compete with a duration of four years, executed by Allard and each of the Principal Shareholders, in the form of EXHIBIT B attached hereto. 5.2.9 Robert Martin shall become an employee of Buyer or DAH. 5.2.10 Evidence of the release by BF Goodrich of Allard and ADS with respect to all liabilities relating to ADS. 5.2.11 Omitted 5.2.12 Resolutions of the directors and shareholders of Allard authorizing the execution and delivery of this Agreement by Allard and the performance of its obligations hereunder, certified by the Corporate Secretary of Allard. 36 5.2.13 Allard shall have delivered to Buyer, in form suitable for filing, such certificates, consents and other documents as are necessary or desirable to effect the transfer of the registration of any name conveyed to Buyer pursuant to this Agreement, in New Hampshire, Pennsylvania, Arizona and in each other state where ADS is qualified to do business or has registered any such name under a "trade name" or "fictitious name" statute or similar law or has taken any other action-in order to obtain or protect rights in such name. 5.2.14 A favorable opinion of counsel for Allard and the Principal Shareholders, addressed to Buyer and DAH and dated the Closing Date, in the form of EXHIBIT C attached hereto. 5.2.15 The Articles of Incorporation of Allard, certified as of a recent date by the Secretary of State of New Hampshire. 5.2.16 The Bylaws of Allard, certified as true and complete by the Corporate Secretary of Allard. 5.2.17 A certificate of the New Hampshire, Pennsylvania and Arizona Secretaries of State, each dated as of a date not earlier than ten days prior to the Closing Date, as to the good standing of Allard in such States (and, in New Hampshire, the payment of all corporate franchise taxes), together with facsimile confirmation of such good standing on the Closing Date. 5.2.18 An affidavit of the Chief Executive Officer or Chief Financial Officer of Allard stating that Allard is not a foreign seller within the meaning of the Internal Revenue Code of 1986, as amended. 5.2.19 Such other consents as Buyer deems necessary or desirable in order to consummate the transactions contemplated herein. 5.2.20 Such other separate instruments of sale, assignment or transfer that Buyer may reasonably deem necessary or appropriate in order to perfect, confirm or evidence title to all or any part of the Property. 5.2.21 On or before 5:30 P.M. Pacific Daylight Time of the 7th calendar day following the receipt by DAH of the following: Equipment, Tooling, Inventory, Backlog and the Financial Statements, DAH shall conclude its due diligence. 5.2.22 On or before 5:30 P.M. Pacific Daylight Time of the twenty-first (21st) calendar day after DAH receives the items listed in Section 5.2.21, DAH shall use its best efforts to obtain the consent of its senior and subordinated lenders to the transaction contemplated by this Agreement. 5.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF ALLARD AND THE PRINCIPAL SHAREHOLDERS. Each and every obligation of Allard and the Principal Shareholders to be performed on or before the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions (unless waived in writing by Allard and the 37 Principal Shareholders): The Buyer shall have delivered to Allard each of the following, in each case duly and properly executed (if appropriate) and in form and substance reasonably satisfactory to Allard: 5.3.1 Payment of an amount equal to $11,000,000, plus or minus any Working Capital Adjustment calculated pursuant to Section 6, in immediately available funds on the Closing Date. 5.3.2 Resolutions of the directors of Buyer and DAH authorizing the execution and delivery of this Agreement by Buyer and DAH respectively and the performance of their respective obligations hereunder, certified by the Corporate Secretaries of Buyer and DAH, respectively. 5.3.3 An opinion of counsel for Buyer and DAH, addressed to Allard and the Principal Shareholders and dated the Closing Date, in the form of EXHIBIT D attached hereto. 5.3.4 The Assumption Agreement with respect to the Assumed Liabilities, in the form of EXHIBIT E attached hereto. 5.3.5 On or before 5:30 P.M. Pacific Daylight Time of the twenty-first (21st) day after DAH has received the material set forth in Section 5.2.21, DAH shall use its best efforts to obtain the consent of its senior and subordinated lenders to the transaction contemplated by this Agreement. 5.3.6 A covenant not to compete with a duration of four years, executed by DAH and each of the Principal Shareholders, in the form of EXHIBIT B attached hereto. 5.4 ALLOCATION. For purposes of income tax reporting, the parties hereto agree that the fixed amounts to be paid by Buyer hereunder shall be allocated as follows: (a) $4,700,000 in respect of tangible assets; (b) $6,300,000 in respect of the goodwill of ADS; and (c) $2,000,000 in respect of the covenants not to complete delivered to Buyer and DAH pursuant hereto. 6. WORKING CAPITAL ADJUSTMENT. In the event that the amount by which, as of the Closing Date, (a) the aggregate value of the Receivables and the Inventory exceeds the then current liabilities of ADS of a nature set forth on Schedule 6 is less than (b) the amount by which, as of April 30, 1996, the aggregate value of the Receivables and the Inventory exceeded the current liabilities of ADS (each as set forth in the Financial Statements dated as of April 30, 1996), the cash payment to be made pursuant to Section 5.3.1 shall be adjusted to reflect such reduction, by a partial refund by Allard of the purchase price paid pursuant hereto, made to DAH in immediately available funds within ten business days of the Closing Date, calculated on the basis of financial statements as of the Closing Date to be delivered concurrently with such payment. Similarly, in the event that the amount by which, as of the Closing Date, (a) the aggregate value of the Receivables and the Inventory of a nature set forth on Schedule 6 exceeds the then current liabilities of ADS is greater than (b) the amount by which, as of April 30, 1996, 38 the aggregate value of the Receivables and the Inventory exceeded the current liabilities of ADS (each as set forth in the Financial Statements dated as of April 30, 1996), the cash payment to be made pursuant to Section 5.3.1 shall be increased to reflect such excess. Such adjustment shall be made by a payment to Allard by DAH in immediately available funds within five (5) business days of DAH's receipt of financial statements as of the Closing Date to be delivered by Allard to DAH. Price Waterhouse & Co. shall make a determination as to the amount of the Working Capital Adjustment pursuant to this Section 6; in the event that Allard does not agree with the determination so made and the difference between the Price Waterhouse & Co. calculation and the amount determined by Allard is less than $30,000, the working capital adjustment shall be made by dividing the disputed amount equally between Buyer and Allard; in the event that the dispute is $30,000 or more, the dispute shall be resolved by Arbitration in accordance with the provisions of Section 7.3 and the non prevailing party in the Arbitration shall pay the entire cost of the Arbitration. 7. MISCELLANEOUS PROVISIONS. 7.1 NOTICE. All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made, if in writing, and (i) if served by personal delivery to the party for whom intended (which shall include overnight delivery by Federal Express or similar service), (ii) or 3 business days after being deposited, postage prepaid, certified or registered mail, return receipt requested, in the United States mail bearing the address shown in this Agreement for, or such other address as may be designated by writing hereafter by, such party, or (iii) if sent by telecopy to the number showing in this Agreement for, or such other number as may be designated in writing hereafter by, such party and immediately confirmed by sending a copy of such notice by either method described in clause (i) or (ii) above. 7.2 POST-CLOSING ACCESS. For the shorter of (1) the period DAH owns Buyer or (ii) a period of seven (7) years commencing on the Closing Date, or for such longer period as may be required by applicable law, the Buyer and DAH shall retain all books, records and other data relating to the business of ADS prior to the Closing Date. The Buyer and DAH shall grant access to such books, records and other data to Allard and the Principal Shareholders and their representatives during regular business hours upon reasonable prior notice to the extent that such access is required by Allard and the Principal Shareholders in connection with tax, regulatory or contractual matters, or otherwise in order to permit Allard and the Principal Shareholders to comply with applicable law, or in order to defend against any claim brought against Allard or the Principal Shareholders. Provided, however, in the event DAH sells Buyer, DAH shall reserve the right on behalf of Allard. 7.3 ARBITRATION. Any dispute, claim or controversy arising out of or relating to this Agreement or breach thereof shall be decided by Arbitration conducted in Philadelphia, Pa. before a single arbitrator in an arbitration proceeding otherwise conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association and which arbitration provides for reasonable discovery, including depositions, interrogatories and production of documents. The decision of the arbitrator shall be final and binding on the parties and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The cost of arbitration shall be shared equally between the parties. 39 7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, and the documents referred to herein and therein embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, relative to said subject matter. 7.5 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and obligations arising hereunder shall inure to the benefit of and be binding upon Allard, its successors and permitted assigns, Buyer and DAH, their respective successors and permitted assigns, and the Principal Shareholders, their heirs, legal representative and permitted assigns. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party or parties except that Buyer shall have the right to assign, in whole or in part, its rights hereunder to one or more affiliates of Buyer, which in each case shall be a wholly-owned subsidiary of Buyer. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the term hereof shall be void and of no force or effect. 7.6 CAPTIONS. This Agreement and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 7.7 WAIVER: CONSENT. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any condition of this Agreement or breach by the other party of any of its obligations or representations hereunder or thereunder shall be deemed to be a waiver of any other condition or subsequent or prior breach of the same or any other obligation or representation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. 7.8 NO THIRD PARTY BENEFICIARIES. Subject to Section 7.3, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto, any rights, remedies or other benefits under or by reason of this Agreement. 7.9 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 7.10 FACSIMILE SIGNATURES. This Agreement may be executed by facsimile signatures. Such signatures shall be forwarded to the other parties by overnight mail. 7.11 SEVERABILITY. With respect to any provision of this Agreement finally determined by a court of competent jurisdiction to be unenforceable, Allard, Principal 40 Shareholders, DAH and Buyer hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision of this Agreement cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.12 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. DeCRANE AIRCRAFT HOLDINGS, INC. By: ---------------------------- ADS ACQUISITION, INC. By: ---------------------------- ALLARD INDUSTRIES, INC. By: ---------------------------- THE GERALD R. ALLARD REVOCABLE TRUST OF 1994 By: ---------------------------- Gerald R. Allard, Trustee THE ALLARD CHILDREN'S TRUST f/b/o JOHN R. ALLARD By: ---------------------------- 41 severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.12 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ---------------------------- ADS ACQUISITION, INC. By: /s/ R. Jack DeCrane ---------------------------- ALLARD INDUSTRIES, INC. By: ---------------------------- THE GERALD R. ALLARD REVOCABLE TRUST OF 1994 By: ---------------------------- Gerald R. Allard, Trustee THE ALLARD CHILDREN'S TRUST f/b/o JOHN R. ALLARD By: ---------------------------- 41 Shareholders, DAH and Buyer hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision of this Agreement cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.12 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. DeCRANE AIRCRAFT HOLDINGS, INC. By: ---------------------------- ADS ACQUISITION, INC. By: ---------------------------- ALLARD INDUSTRIES, INC. By: /s/ John R. Allard, CEO ---------------------------- THE GERALD R. ALLARD REVOCABLE TRUST OF 1994 By: ---------------------------- Gerald R. Allard, Trustee THE ALLARD CHILDREN'S TRUST f/b/o JOHN R. ALLARD By: /s/ John R. Allard, Trustee ---------------------------- 41 Shareholders, DAH and Buyer hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision of this Agreement cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.12 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. DeCRANE AIRCRAFT HOLDINGS, INC. By: ---------------------------- ADS ACQUISITION, INC. By: ---------------------------- ALLARD INDUSTRIES, INC. By: ---------------------------- THE GERALD R. ALLARD REVOCABLE TRUST OF 1994 By: /s/ Gerald R. Allard, Trustee ---------------------------- Gerald R. Allard, Trustee THE ALLARD CHILDREN'S TRUST f/b/o JOHN R. ALLARD By: ---------------------------- 41 THE ALLARD CHILDREN'S TRUST f/b/o MICHAEL E. ALLARD By: /s/ Michael E. Allard ---------------------------- THE NAZARIAN FAMILY TRUST By: ---------------------------- David Nazarian, Trustee By: ---------------------------- Angela Nazarian, Trustee ------------------------------- Younes Nazarian 42 THE ALLARD CHILDREN'S TRUST f/b/o MICHAEL E. ALLARD By: ---------------------------- THE NAZARIAN FAMILY TRUST By: /s/ David Nazarian ---------------------------- David Nazarian, Trustee By: /s/ Angela Nazarian ---------------------------- Angela Nazarian, Trustee /s/ Younes Nazarian ------------------------------- Younes Nazarian 42 EX-10.19 19 EXHIBIT 10.19 Exhibit 10.19 ASSET PURCHASE AND SALE AGREEMENT, DATED DECEMBER 4, 1996 AMONG REGISTRANT, EE ACQUISITION, INC. WILLIAM LYON AND ELSINORE LP ASSET PURCHASE AND SALE AGREEMENT This Asset Purchase and Sale Agreement ("Agreement") is made and entered into as of December 4, 1996 by and among DeCrane Aircraft Holdings, Inc., an Ohio Corporation ("DAH"), EE Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of DAH ("Buyer"), William Lyon, an individual ("Lyon"), and Elsinore LP, a California Limited Partnership ("ELP") based on the following facts: ELP and Lyon (collectively referred to herein as the "Sellers") are the owner of and desires to sell (i) the stock of Elsinore Aerospace Services, Inc., a California corporation ("EAS") and (ii) the Elsinore Engineering Services division of ELP ("Elsinore Engineering"); Buyer desires to purchase the assets of Elsinore Engineering (the "EE Assets") and the stock of EAS; Based on the foregoing facts and circumstances, the parties hereby agree as follows: 1. ASSETS TO BE PURCHASED AND SOLD. 1.1 THE EE ASSETS. On the Closing Date, ELP shall transfer to Buyer all of the assets, properties, rights (contractual or otherwise) and business of Elsinore Engineering (including but not limited to goodwill), whether such assets and business is in the nature of real, personal, or mixed property and whether such assets are tangible or intangible or known or unknown, provided, however, that the business and assets of Elsinore Engineering located at Grand Prairie, Texas, including, but not limited to, leasehold interests, facility, furniture, fixtures and equipment (the "Grand Prairie Facility") are not being transferred and the liabilities resulting from the Grand Prairie Facility are not being assumed pursuant to this Agreement. Without limiting the generality of the foregoing, the assets of Elsinore Engineering to be transferred include: 1.1.1 REAL PROPERTY LEASES. Any and all rights under leases of real property and improvements, including that real property listed on Schedule 1.1.1, (which leased property (including that listed on Schedule 1.1.1) is referred to as "the Real Property Leases"); 1.1.2 PERSONAL PROPERTY (a) All machinery and equipment, including that listed on Schedule 1.1.2(a), (which machinery and equipment (including that listed on Schedule 1.1.2(a) is referred to as the "Machinery and Equipment"); (b) All tooling (including that listed on Schedule 1.1.2(b)), (which tooling (including that listed on Schedule 1.1.2(b)) is referred to as the 1 "Tooling"); (c) All parts and furniture ("Parts and Furniture"); (d) All rights under leases of equipment, vehicles or other tangible personal property, including that listed on Schedule 1.1.2(d), (all of which (including that which is listed on Schedule 1.1.2(d)) is referred to as the "Leased Personal Property" or "Personal Property Leases"). All of the Machinery and Equipment, Tooling and Parts and Furniture are referred to collectively as "Personal Property." 1.1.3 VEHICLES. All automobiles and other motor vehicles, including without limitation those listed on Schedule 1.1.3 (all of which (including those listed on Schedule 1.1.3) are referred to as the "Vehicles"). 1.1.4 APPROVALS. All licenses, permits, consents, authorizations, approvals, certificates and franchises of any regulatory, administrative or other government agency including those matters listed in Schedule 1.1.4 (all of which items are referred to as "Approvals"). 1.1.5 PROPRIETARY RIGHTS. (a) Except as provided in Section 6.1.2, all patents, inventions, STC's, trademarks, names, service marks, trade names, copyrights, marks, symbols, logos, franchises and permits and all applications therefor, registrations thereof and licenses, sublicenses or agreements in respect thereof, which ELP owns and Elsinore Engineering uses or has the right to use or that ELP is a party to any filing, registration with any federal, foregoing, state local or regulatory authority, including those listed on Schedule 1.1.5(a), (all of which (including those described on Schedule 1.1.5(a)) are referred to as "Protectable Proprietary Rights"). 2 (b) All trade secrets, processes, proprietary knowledge, know-how, and other processes which are not filed or registered but which constitute the confidential proprietary information of ELP and Elsinore Engineering uses or has used or has the right to use, including those described in Schedule 1.1.5(b), (all of which (including those described on Schedule 1.1.5(b)) are referred to as "Confidential Proprietary Rights"). 1.1.6 CONTRACTS. All rights under contracts and agreements and specifically including, but not limited to, purchase and sales orders, quotations, executory commitments, instruments, guaranties, indemnifications, arrangements or other understandings of Elsinore Engineering, including without limitation those matters listed on Schedule 1.1.6, (all of which matters (including those listed on Schedule 1.1.6) are referred to as "Contracts"). 1.1.7 RECEIVABLES. All accounts and notes receivable, including those listed on Schedule 1.1.7, (all of which are referred to as "Receivables"). 1.1.8 DEPOSITS AND PREPAID EXPENSES. All of the deposits and prepaid expenses of ELP which relate to or are used in the business of Elsinore Engineering, including without limitation those deposits and prepaid expenses listed on Schedule 1.1.8, (all of which deposits and prepaid expenses (including those listed on Schedule 1.1.8) are referred to as "Deposits" and "Prepaid Expenses"). 1.1.9 TERMINATION CLAIMS. To the full extent legally possible with respect to contracts for which Buyer assumes any liability pursuant to this Agreement, all claims for termination for convenience or other claims against prime contractors, government agencies, or others with respect to the termination of contracts prior to the complete performance by Elsinore Engineering of any such contract, including without limitation such claims as are listed on Schedule 1.1.9, (all of such matters (including those listed on Schedule 1.1.9) are referred to as "Termination Claims"). 1.1.10 [Intentionally left blank.] 1.1.11 OTHER CLAIMS. To the full extent legally possible with respect to contracts for which Buyer assumes any liability pursuant to this Agreement, all claims, causes of action, demands and pending litigation in which ELP on behalf of Elsinore Engineering is seeking the recovery of money or equitable relief, including those matters listed on Schedule 1.1.11, (all of such matters (including those listed on Schedule 1.1.11) are referred to as "Other Claims"). 3 1.1.12 BOOKS AND RECORDS. All books of account, customer lists, files, papers and records normally maintained by Elsinore Engineering and a copy of all of the books of account and records of ELP which relate to Elsinore Engineering. 1.1.13 TELEPHONE NUMBERS. All telephone, fax, email and other numbers for communication with Elsinore Engineering, including without limitation those numbers listed on Schedule 1.1.13. 1.1.14 All goodwill of ELP which in any way relates to Elsinore Engineering or the business of Elsinore Engineering except as provided in Section 6.1.2. 1.2 EAS. On the Closing Date, Lyon will transfer to Buyer 100% of all of the classes of stock of EAS and all securities which may be converted into the stock of EAS. 1.3 NON-ASSIGNMENT OF ASSETS. To the extent that any Asset described in Section 1.1, may not be assigned or may only be assigned with the consent of a third party, notwithstanding anything to the contrary in this Agreement, neither this Agreement nor any action taken shall constitute an assignment or an agreement to assign. 2. PURCHASE PRICE. 2.1 The purchase price shall be $2.25 million (the "Purchase Price"), of which $1.0 million is payable in immediately available funds (cash) on the Closing Date and the balance of $1.25 million together with interest at the rate of 15% per annum on the unpaid portion of the Purchase Price or the maximum rate allowed under applicable law, if less, in the form of a Promissory Note in the form of Exhibit F attached hereto, subject to adjustment for working capital, as provided in Section 2.2, will be payable on the earlier of (i) three business days following the funding of an initial public offering of the common stock of DAH (the "IPO") or (ii) February 15, 1997. If the Board of Directors of DAH takes action to abandon the IPO on or before January 31, 1997 the balance of the Purchase Price will be due and payable two weeks following such action by the DAH Board of Directors, however, in no event shall the balance of the Purchase Price be paid prior to the reduction, if any, for the Working Capital Adjustment, contemplated by Section 2.2. Notwithstanding the foregoing sentence, Seller acknowledges that pursuant to an agreement with a senior lender, DAH and Buyer are prevented from making any payment pursuant to this Agreement or the Note delivered pursuant hereto at any time during which DAH is in payment default to such senior lender. 2.2 "Required Working Capital Percentage" shall be the average of Elsinore Engineering's working capital (as determined pursuant to GAAP as defined below) as a percentage of monthly sales measured at the end of each month for the 12 calendar months ended September 30, 1996. This computation shall be accomplished as soon as practical after the Closing Date. 4 "Required Working Capital" is the dollar amount equal to the net sales for the three month period ended September 30, 1996 divided by three, multiplied by the Required Working Capital Percentage. To the extent that working capital on the Closing Date is an amount less than Required Working Capital, such amount shall be deducted from the amount due Seller pursuant to the Promissory Note delivered pursuant to Section 2.2. 2.3 DAH will cause Buyer to pay to Seller 15% of any fees earned for purchases ("Purchasing Fees") made by Buyer or any direct or indirect affiliate of DAH or Buyer between the Closing Date and December 31, 1997, from purchasing by Elsinore Engineering for Daimler-Benz Aerospace Airbus GmbH ("Daimler-Benz") in the passenger to freighter conversion of A300-B2, A300-B4 and A300-600 Aircraft. Within 30 days after the month in which each Purchasing Fee is received, an accounting and payment shall be made to Seller. 2.4 DAH will cause Buyer to pay to Seller an amount equal to a commission of 5% on any Kits purchased by Daimler-Benz from DAH or Buyer or any direct or indirect affiliate of DAH or Buyer between the Closing Date and December 31, 1999 for use in the passenger to freighter conversion of A300-B2, A300-B4 and A300-600 Aircraft. Within 30 days after the month in which each such payment in respect of Kit purchase price is received, an accounting and payment shall be made to Seller. 3. REPRESENTATIONS AND WARRANTIES. 3.1 JOINTLY BY BUYER AND DAH. Buyer and DAH hereby jointly and severally represent and warrant to Sellers that, except as set forth on Schedule 3.1, the representations and warranties of Buyer and DAH, and either of them, contained in this Agreement, including those contained in this Section 3, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. Buyer and DAH hereby jointly and severally represent and warrant to Sellers the following: 3.1.1 ORGANIZATION. Buyer and DAH are both Corporations duly organized, validly existing and in good standing under the laws of the State of Delaware and Ohio, respectively, and each have all requisite corporate power and authority to own, lease and operate their respective properties and conduct their respective businesses as now being conducted. Buyer and DAH are each duly qualified, or will be duly qualified prior to the Closing Date, to do business and in good standing in each jurisdiction listed on Schedule 3.1.1, are not qualified to do business in any other jurisdiction and neither the nature of the business conducted by either of them nor the property either of them owns, leases or operates requires either of them to qualify to do business as a foreign corporation in any other jurisdiction. Buyer and DAH have previously delivered to Sellers complete and correct copies of Buyer's and DAH's articles of incorporation and bylaws as in effect on the date hereof. 3.1.2 AUTHORIZATION. Buyer and DAH each have all requisite 5 corporate power and authority to enter into this Agreement and the other Transaction Documents to which either of them is a party, perform their respective obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. All necessary corporate action has been taken by Buyer and DAH with respect to the execution and delivery of this Agreement, and the other Transaction Documents to which either of them is a party, and this Agreement and the other Transaction Documents to which either of them is a party, constitute valid and binding obligations of Buyer and DAH, enforceable against Buyer and DAH, as the case may be, in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.1.3 BROKERS AND FINDERS. Except as disclosed in Schedule 3.1.3, neither Buyer, DAH nor any of their officers, directors or employees, has engaged any broker or finder or incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses and no broker or finder has acted directly or indirectly for Buyer or DAH in connection with this Agreement or the transactions contemplated hereby. 3.2 JOINTLY BY SELLERS. Sellers hereby jointly and severally represent and warrant to Buyer and DAH that, except as set forth on Schedule 3.2, the representations and warranties of Sellers, and either of them, contained in this Agreement, including those contained in this Section 3.2, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. As used in this Section 3.2. To the "Senior Management's Knowledge" means to the knowledge of William Lyon and Denis Kalscheur. Sellers hereby jointly and severally represent and warrant to Buyer and DAH the following: 3.2.1 CORPORATE ORGANIZATION. EAS is a corporation duly organized, validly existing and in good standing under the laws of the State of California. EAS is presently an "S Corporation" as such term is defined under the Internal Revenue Code of 1986, as amended (the "Code"). ELP is a limited partnership duly organized, validly existing and in good standing under the laws of the State of California. Each of EAS and ELP has all requisite corporate power and authority to own, lease and operate its respective properties and conduct its respective business as now being conducted. Each of EAS and ELP is duly qualified to do business and in good standing in the State of California. Sellers have previously delivered to Buyer complete and correct copies of the articles of incorporation and by-laws of EAS and the limited partnership agreement of ELP, as in effect on the date hereof, and EAS and ELP are not in default in the performance, observation or fulfillment of any provision of their respective organizational documents. 3.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital stock of EAS consists solely of 1,000 shares of Common Stock, no par value ("EAS Common Shares"); EAS has issued 1,000 EAS Common Shares, of which 1,000 EAS Common Shares are outstanding, constituting all of the issued and outstanding shares of capital stock of any class of EAS. 100% of the outstanding EAS Common 6 Shares are owned by William Lyon. All outstanding EAS Common Shares have been validly issued and are fully paid and non-assessable and free of preemptive rights; there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, or other commitments or rights of any type relating to the issuance, sale or transfer by EAS of any securities of EAS, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of EAS; and EAS has no obligation of any kind to issue any additional securities. All of the ownership interests in ELP are owned by the persons listed in Schedule 3.2.2. All of such outstanding EAS Common Shares and ownership interests in ELP are owned free and clear of all liens, charges, claims, encumbrances, pledges, security interests, equities and restrictions whatsoever. 3.2.3 AUTHORIZATION OF SELLERS. EAS has full corporate power and authority to enter into this Agreement, and the other Transaction Documents to which it is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. ELP, and EAS as its general partner, has all requisite power, authority and legal capacity and is competent to execute and deliver this agreement, and the other Transaction Documents to which ELP is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby. All necessary and appropriate corporate action has been taken by each Seller and EAS with respect to the execution and delivery of this Agreement, and the other Transaction Documents to which they are respectively a party. This Agreement constitutes, and the other Transaction Documents to which each Seller and EAS are parties when executed and delivered will constitute, valid and binding obligations of each such party, enforceable against each such party in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 3.2.4(a) are (i) the balance sheets of Elsinore Engineering (excluding the Grand Prairie Facility) as at December 31, 1995 and as at September 30, 1996, and (ii) the related statements of income for the year ended December 31, 1995 and the 9 months ended September 30, 1996 (all of such documents referred to collectively as the "Financial Statements"). The Financial Statements dated as of September 30, 1996 either (a) reflect the equivalent of any adjustments made in the Financial Statements dated as of December 31, 1995 or (b) have footnote disclosure to reflect the absence of such adjustments and the dollar amount of such adjustments had they been made. The Financial Statements (i) are true, correct and complete, subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b) (ii) have been prepared from and are in accordance with the books and records of Elsinore Engineering, (iii) have been prepared using an accrual basis method and average cost inventory cost flow assumptions, (iv) are in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis for such periods subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b), and (v) fairly present in all material respects the financial position of Elsinore Engineering as of the dates stated and the results of operations of Elsinore Engineering for the periods then ended in 7 accordance with such practice subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b); but EXCLUDING, in each case, the Grand Prairie Facility. On the date of this Agreement and on the Closing Date, neither EAS nor Elsinore Engineering has any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except in the case of the contract between ELP and Daimler-Benz described at Section 5.2.9, as previously disclosed to Buyer and DAH, and as reflected or provided for in the balance sheets in the Financial Statements, subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b) or, if not required by GAAP to be so reflected, in Schedule 3.2.4(b). Since September 30, 1996, except as described on Schedule 3.2.4, there has been no material adverse change in the financial condition, operations, business or prospects taken as a whole of Elsinore Engineering from that set forth in the Financial Statements dated as of September 30, 1996. 3.2.5 COMPLIANCE WITH LAW. (a) Each of Elsinore Engineering, EAS, and ELP (with respect to the business of Elsinore Engineering) is in compliance in all material respects with all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered, by any federal, state, local or foreign court or governmental authority or instrumentality the violation of which would be materially adverse to Elsinore Engineering, EAS and ELP or any of their respective businesses or properties. (b) EAS and Elsinore Engineering are each in compliance in all material respects with all applicable federal, state and local laws, ordinances, rules and regulations pertaining to environmental matters, including solid waste disposal, toxic substances, hazardous substances, hazardous materials, hazardous waste, toxic chemicals, pollutants, contaminants and air or water pollution and to the storage, use, handling, transportation, discharge and disposal (including spills and leaks) of gaseous, liquid, semi-solid or solid materials. Neither EAS nor Elsinore Engineering has, and to the Senior Management's Knowledge, no third party has, disposed or discharged any chemicals, oil or solid wastes on any part of the Real Property or any other any property owned, operated, 8 leased or used by EAS or Elsinore Engineering except in compliance in all material respects with applicable laws. There are no underground storage tanks located on any part of the Real Property or any other property owned, operated, leased or used by EAS or Elsinore Engineering, except as disclosed on Schedule 3.2.5(b). (c) Schedule 3.2.5(c) contains a complete and accurate list of all material Permits. Each of such Permits is currently valid and in full force and effect and assignable to Buyer. Such Permits constitute all material franchises, licenses, permits, consents, authorization, approvals, and certificates of any regulatory, administrative or other agency or body necessary for the conduct of the business of Elsinore Engineering and the DAS held by EAS. Neither EAS nor Elsinore Engineering are in material violation of any of such Permits and there is no pending or threatened proceeding which could result in the revocation, cancellation or inability of EAS, Elsinore Engineering or any Seller to renew or transfer any such Permit which is material to its business. (d) To Senior Management's Knowledge, except as set forth in. Schedule 3.2.5(d), with respect to the business of Elsinore Engineering, neither ELP, EAS nor any Seller is under investigation with respect to, or is currently subject to a charge of or under notice of any violation of, any applicable law. 3.2.6 PROPRIETARY RIGHTS. The sale by Sellers contemplated hereby, ownership by Buyer of any of the Property and, to Senior Management's Knowledge, the business of Elsinore Engineering as conducted prior to the Closing Date, except as disclosed on Schedule 3.2.6, was not, is not and will not infringe or be in contravention of any trade name, service mark, patent, trademark, copyright or other proprietary right of any third party. Schedule 3.2.6 sets forth all of the Proprietary Rights and Registrations owned or used by Elsinore Engineering. Other than those Proprietary Rights listed on Schedule 3.2.6, and other than Seller's proprietary rights as set forth in Section 6.1.2, no patent, invention, trade secret, process, proprietary right, proprietary knowledge, know-how, computer software, trademark, name, service mark, trade name, copyright, mark, symbol, logos, franchise, permit, license, sublicense or other such right 9 is necessary for the operation of the business of Elsinore Engineering as the same is currently conducted. None of the Proprietary Rights are registered with any governmental or regulatory authority except as set forth on Schedule 3.2.6. The amount of each of the royalties and license fees presently paid by or on behalf of Elsinore Engineering in the ordinary course of its business is listed in Schedule 3.2.6. 3.2.7 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the matters listed on Schedule 3.2.7, with respect to the business of Elsinore Engineering, neither of EAS or the Sellers is a party to or bound under any (and, to Senior Management's Knowledge, there is no) pending, proposed or threatened regulation, certificate, mortgage, lien, lease, agreement, contract, instrument, law, vote, order, judgment or decree, or any similar restriction not of general application which materially restricts or otherwise adversely affects, or reasonably could be expected to materially restrict or otherwise adversely to affect (a) the consummation of the transfers of the property to Buyer and the other transactions contemplated in this Agreement or (b) in any material respect: (i) the condition, financial or otherwise, of EAS or the Property; or (ii) the continued operation by Buyer of the business of Elsinore Engineering after the Closing Date on substantially the same basis as said business was theretofore operated. 3.2.8 REAL PROPERTY. Except as set forth in Schedule 3.2.8, neither EAS nor Elsinore Engineering owns, leases, or licenses any real property interests. The property which constitutes Real Property interests includes all such interests now owned or used by Elsinore Engineering and material to the operation of its business as presently conducted (excluding the Grand Prairie Facility). All such properties are held free and clear of all material mortgages, pledges, liens, security interests and encumbrances, and material restrictions of any nature whatsoever, except as listed on Schedule 3.2.8. Except as set forth in Schedule 3.2.8, all real property and each building and structure owned or used by Elsinore Engineering (excluding the Grand Prairie Facility), and material to the operation of its business as presently conducted, is suitable for the purpose or purposes for which it is being used, and is in all material respects in such condition and repair as to permit the continued operation of said business. To Senior Management's Knowledge, none of such real property, buildings or structures is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. To Senior Management's Knowledge, there are no material structural defects in the exterior walls or the interior bearing walls, the foundation or the roof of any plant, building, garage or other such structure owned, leased or used by Elsinore Engineering and the electrical, plumbing and heating systems, and the air conditioning system, if any, of any such plant, building, garage or structure are in reasonable operating condition in light of their age and prior use. To Senior Management's Knowledge, the utilities servicing the real property owned, leased or used by Elsinore Engineering are adequate to permit the continued operation of the business of Elsinore Engineering and to Senior Management's Knowledge, there are no pending 10 zoning, condemnation or eminent domain proceedings, building, utility or other moratoria, or injunctions or court orders which would materially affect such continued operation. Schedule 3.2.8 lists, and Sellers have furnished or made available to Buyer copies of, all engineering, geologic and environmental reports prepared by or for either Seller with respect to the real property owned, leased or used by Elsinore Engineering. 3.2.9 PERSONAL PROPERTY. Schedule 3.2.9 contains complete and accurate descriptions of, Elsinore Engineering's Machinery, Equipment, Tooling and Vehicles. Except as set forth in Schedule 3.2.9, and except with respect to personal property leased pursuant to the Personal Property Leases, ELP has good, valid and marketable title to all of its property which is personal property of every kind, nature and description, tangible or intangible, and wherever located, including all property and assets which are personal property shown or reflected on the September 30, 1996 Balance Sheet. Schedule 3.2.9 contains a complete and accurate description of all Personal Property Leases to which Elsinore Engineering is party or which Elsinore Engineering, uses in its business (in each case excluding the Grand Prairie Facility). The Property which is personal property constitutes all material personal property now used in and necessary for the conduct of the business of Elsinore Engineering as presently conducted (excluding the Grand Prairie Facility), all of which is held free and clear of all mortgages, pledges, liens, security interests, encumbrances and material restrictions of any nature whatsoever, except as listed on Schedule 3.2.9. Except as listed on Schedule 3.2.9, no financing statement under the Uniform Commercial Code or similar law naming ELP (with respect to the Property), EAS or Elsinore Engineering as debtor has been filed in any jurisdiction, and neither ELP, EAS nor Elsinore Engineering is a party to or bound under any agreement or legal obligation authorizing any party to file any such financing statement. Except as set forth on Schedule 3.2.9, all Machinery and Equipment and other tangible personal property owned or used by Elsinore Engineering and material to the operation of the business as presently conducted (excluding the Grand Prairie Facility) is suitable for the purpose or purposes for which it is being used, and is in all material respects in such condition and repair as to permit the continued operation of said business. None of the Machinery or Equipment is in need of maintenance or repairs in any material respect except for ordinary, routine maintenance and repairs necessary to permit the operation of said business. 3.2.10 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.2.10, the operations of Elsinore Engineering and EAS comply in all material respects with all occupational health and safety acts and all environmental laws and regulations of all federal, state and local governmental or regulatory bodies having jurisdiction over Elsinore Engineering and EAS. Without limiting the generality of the foregoing, and by way of example only, except as set forth on Schedule 3.2.10: (a) There has not been, and is not occurring, any Release of any Hazardous Substance on any real property owned, operated, leased or used by Elsinore Engineering or EAS during Elsinore 11 Engineering's or EAS' ownership, operation, lease or use of such property except in compliance in all material respects with applicable laws. For purposes of this Agreement, the terms "Release" and "Hazardous Substance" shall have the same meanings as those terms are given in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except that for purposes of this Agreement petroleum (including crude oil or any fraction thereof) shall be deemed a Hazardous Substance. (b) Neither Elsinore Engineering nor EAS has ever received notice that either has sent a Hazardous Substance to a site which, pursuant to CERCLA or any similar state law, (A) has been placed, (or to Senior Management's Knowledge, is proposed to be placed, or may in the future be placed,) on the "National Priorities List" of hazardous waste sites or on any similar list of any federal, state or local governmental agency, including the Comprehensive Environmental Response, Compensation and Liability System list for potential hazardous waste sites, or (B) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (as defined under CERCLA) or to pay for any costs relating to such site. (c) Neither Elsinore Engineering nor EAS has ever been or is currently in material violation of any provision of the Toxic Substances Control Act or the regulations promulgated thereunder. (d) Neither Elsinore Engineering nor EAS is involved in any suit or has received notice of any claim relating to personal injuries from exposure to Hazardous Substances. 3.2.11 BROKERS, FINDERS. The transactions contemplated herein were not submitted to Sellers by any broker or other person entitled to a commission or finder's fee thereon, and were not with the consent of Sellers submitted to DAH by any such broker or other person. Neither of Sellers nor any of its officers, directors or employees has engaged any broker or finder or incurred or taken any action which may 12 give rise to any liability against itself or the Property for any brokerage fees, commissions, finders fees or similar fees or expenses and no broker or finder has acted directly or indirectly for Sellers in connection with this Agreement or the transactions contemplated hereby. No investment banking, financial advisory or similar fees have been incurred or are or will be payable by Sellers in connection with this Agreement or the transactions contemplated hereby. 3.2.12 LEGAL PROCEEDINGS, ETC. Except as set forth on Schedule 3.2.12, there is no claim, litigation, action, suit or proceeding, administrative or judicial, filed, pending, or to Senior Management's Knowledge, threatened against Elsinore Engineering, EAS or with respect to the business of Elsinore Engineering, Sellers, or involving the Property, this Agreement or the transactions contemplated hereby, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, including any unfair labor practice or grievance, proceedings or claim which matter although disclosed on Schedule 3.2.12 would have a material adverse effect on the business or assets of EAS or Elsinore Engineering. To Senior Management's knowledge, there is no basis upon which such claim, litigation, action, suit or proceeding would reasonably be brought or initiated. Except as set forth in Schedule 3.2.12, with respect to the business of Elsinore Engineering, neither EAS, ELP nor Elsinore Engineering is subject to any judgment, order or decree, or, to Senior Management's Knowledge, any governmental restriction applicable to EAS, ELP or Elsinore Engineering which has a reasonable probability of having a Material Adverse Effect. As used herein, "Material Adverse Effect" means any material adverse change in the business operations (as presently conducted or proposed to be conducted), assets, properties or rights, prospects or condition (financial or otherwise) of Elsinore Engineering (excluding the Grand Prairie Facility), or any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change, or which materially adversely affects the ability of Elsinore Engineering to conduct business in any area, or of Buyer to continue the business of Elsinore Engineering as presently conducted. 3.2.13 NO CONFLICT OR DEFAULT. Neither the execution and delivery of this Agreement or any other Transaction Document, nor compliance with the terms and provisions hereof or thereof, including the consummation of the transactions contemplated hereby and thereby, will (a) violate in any material respect any statute, regulation or ordinance of any governmental authority, or (b) conflict with or result in the breach of any term, condition or provision of the articles of incorporation or bylaws of EAS or the limited partnership agreement of ELP, or (c) to Senior Management's Knowledge, conflict with or result in the breach of any term, condition or provision of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument, to which EAS, ELP or (with respect to the business of Elsinore Engineering) any of the Sellers, is a party or by which any such party or any part of the Property is or may be bound, or (d) constitute a material default (or an event which with the lapse of time or the giving of notice, or both, would constitute a material default) under any such agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument thereunder, or (e) result in the creation or imposition of any material lien, charge or encumbrance, or to Senior Management's Knowledge, any other material 13 restriction of any nature whatsoever with respect to any part of the Property, or (f) give to others any interest or rights, including rights of termination, acceleration or cancellation in or with respect to any part of the Property or the business of Elsinore Engineering which would have a Material Adverse Effect thereon. 3.2.14 LABOR RELATIONS. Schedule 3.2.14 sets forth all collective bargaining or other labor agreements to which Elsinore Engineering is bound and which covers Elsinore Engineering employees. ELP has previously delivered to Buyer true, correct and complete copies of each such agreement. There is no labor strike, dispute, slowdown or stoppage, or petition for certification actually pending or, to Senior Management's Knowledge, threatened against or involving Elsinore Engineering, nor, to Senior Management's Knowledge, any union organizing campaign pending or threatened. Schedule 3.2.14 sets forth all pending grievances and arbitration proceedings against Elsinore Engineering arising out of or under a collective bargaining or other labor agreement. No collective bargaining or other labor agreement is currently being negotiated by ELP by or on behalf of Elsinore Engineering. With respect to the business of Elsinore Engineering, neither Elsinore Engineering, EAS nor ELP has experienced any work stoppage or other material labor difficulty over the past three years. No agreement which is binding on Elsinore Engineering, EAS or EAP restricts it from relocating or closing any or all of its operations. 3.2.15 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in Schedule 3.2.15, neither EAS nor Elsinore Engineering currently sponsors, maintains or contributes, or has within the past 3 years sponsored, maintained or contributed, to any pension, retirement, profit-sharing, deferred compensation, bonus, stock option or other incentive plan, or any other employee benefit program, arrangement, agreement or understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such employee benefit plan is otherwise exempt from the provisions of ERISA, and whether or not formal or informal, written or oral, and whether or not legally binding. All such plans, funds or programs sponsored, maintained or contributed to by Elsinore Engineering currently or within the past 3 years, whether or not listed on Schedule 3.2.15, are hereinafter referred to as the "Employee Benefit Plans"). 14 (b) As of the Closing Date, no entity that may be regarded as under common control with Elsinore Engineering or EAS pursuant to Section 414 of the Internal Revenue Code of 1986, as amended (the "Code"), shall have incurred any unsatisfied liability under Title IV of ERISA or Section 4980 of the Code, nor shall any such entity have become subject to a lien pursuant to Section 412(n) of the Code. (c) Full payment has been made of all amounts which Elsinore Engineering or EAS is required, under applicable law or under any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to which it is a party, to have paid as contributions to or benefits under any Employee Benefit Plan as of the last day of the most recent fiscal year of such Employee Benefit Plan ended prior to the date hereof. Elsinore Engineering has made adequate provision in its financial statements for liabilities to meet current contributions or benefit payments. (d) Elsinore Engineering and EAS have each performed all obligations required to be performed by it under the Employee Benefit Plans. Neither Elsinore Engineering nor EAS has engaged in any transaction with respect to the Employee Benefit Plans which would subject either of them, Buyer or DAH to a tax, penalty or liability for a prohibited transaction under section 406, 407 or 502(i) of ERISA or Section 4975 of the Code, nor have either of EAS's or Elsinore Engineering's directors, officers, partners, employees or agents, to the extent they or any of them are fiduciaries with respect to such Employee Benefit Plans, breached any of their responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or which would result in any claim being made under or by or on behalf of any such Employee Benefit Plans by any party with standing to make such claim. Neither Elsinore Engineering nor EAS will have any plan or commitment, whether formal or informal, written or oral, and whether or not legally binding, to modify or change any Employee Benefit Plan in 15 any material manner prior to the Closing Date. EAS, Elsinore Engineering and any "administrator(s)" (as described in Section 3(16)(A) of ERISA) of the Employee Benefits Plans have complied in all material respects with the applicable requirements of ERISA, the Code and all other statutes, orders, rules or regulations, specifically including material compliance with all reporting and disclosure requirements of Part 1 of Title 1 of ERISA and of the Code in a timely and accurate manner, and no penalties have been or will be imposed, nor is EAS, Elsinore Engineering or any administrator liable for any penalties imposed, under ERISA, the Code or otherwise with respect to the Employee Benefit Plans or any related trusts. Neither Elsinore Engineering nor EAS is delinquent in the payment of any federal, state or local taxes with respect to the Employee Benefit Plans. There is no pending litigation, arbitration, or disputed claim, settlement adjudication or proceeding with respect to the Employee Benefit Plans, and none of EAS, Elsinore Engineering or any administrator is aware of any threatened litigation, arbitration or disputed claim, adjudication proceeding, or any governmental or other proceeding, or investigation with respect to the Employee Benefit Plans or with respect to any fiduciary or administrator thereof (in their capacities as such), or any party-in-interest thereto (with respect to their relationship as such). There is no "defined benefit plan" within the meaning of Section 414(j) of the Code or Section 3(35) of ERISA to which either Elsinore Engineering or EAS has been a party or has been required to make any contributions at any time during the last ten years. There is no "multiemployer plan" within the meaning of Section 3(37) of ERISA to which either Elsinore Engineering or EAS has been a party or has been required to make any contributions at any time during the last ten years. (e) Seller has delivered or caused to be delivered to Buyer and DAH prior to the Closing Date, true, accurate and complete copies of (A) all 16 Employee Benefit Plans and any related trust agreements, custodial agreements, investment management agreements, insurance contracts or policies, and administrative service contracts, all as in effect, together with all amendments thereto which will become effective at a later date; (B) the latest Summary Plan Description and any modifications thereto for each Employee Benefit Plan requiring same under ERISA; (C) the Summary Annual Report for the current and prior fiscal years for each Employee Benefit Plan requiring same under ERISA; (D) each Form 5500 and/or Form 990 series filing (including required schedules and financial statements) for the current and the prior fiscal year for each Employee Benefit Plan required to file such form; and (E) the most recent actuarial evaluation, analysis or other report issued with respect to any Employee Benefit Plan. None of EAS, Elsinore Engineering or any officer, partner, employee, representative or agent of either of them, has made any written or oral representations or statements to any current or former employees, dependents, participants or beneficiaries or other persons which are inconsistent in any material manner with the provisions of these documents. (f) With respect to any of Elsinore Engineering's, or EAS's employee welfare plans (as defined in Section 3(1) of ERISA and including those Employee Benefits Plans which qualify as such) which are "group health plans" under Section 4980B of the Code and Section 607(1) of ERISA and related regulations (relating to the benefit continuation rights imposed by the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as amended to date), there has been timely compliance in all material respects with all requirements imposed thereunder, as and when applicable to such plans, so that Elsinore Engineering and EAS have not (nor will incur any) loss, assessment, penalty, loss of federal income tax deduction or other sanction, arising on account of or in respect of any failure to comply with any COBRA benefit continuation requirement, which 17 is capable of being assessed or asserted directly or indirectly against such party, or against Buyer or DAH or any of their respective subsidiaries or other member of Buyer's corporate control group, with respect to any such plan. (g) No Employee Benefit Plan maintained by EAS or Elsinore Engineering which is a "welfare plan" within the meaning of Section 3(1) of ERISA provides benefits to employees after termination of employment, except as required by Section 4980B of the Code. 3.2.16 CONTRACTS AND COMMITMENTS. Schedule 3.2.16 is a list of all of the Contracts to which Elsinore Engineering is a party and which involve the payment by or to Elsinore Engineering in the aggregate of $50,000 or more (per contract) during any year. Sellers have previously delivered to Buyer correct and complete copies of each such Contract. The Real Property Leases, the Personal Property Leases and the Contracts listed on Schedule 3.2.16, taken together, constitute all of the contracts, agreements, contract rights, leases, license agreements, franchise rights and agreements, policies, purchase and sales orders, quotations and executory commitments, instruments, guaranties, indemnifications, arrangements, obligations and understandings (written or oral), involving the payment by or to Elsinore Engineering (excluding the Grand Prairie Facility), in the aggregate of $50,000 or more (per contract) during any year, necessary to the conduct of the business of Elsinore Engineering as presently conducted (excluding the Grand Prairie Facility). All of the Real Property Leases, the Personal Property Leases and the Contracts are valid and binding, in full force and effect and enforceable against Elsinore Engineering in accordance with their respective provisions. Except as disclosed on Schedule 3.2.16, neither EAS nor Elsinore Engineering has assigned, mortgaged, pledged, encumbered, or otherwise hypothecated any of its right, title or interest under any Real Property Lease, any Personal Property Lease, or any Contract. Neither EAS nor Elsinore Engineering (nor, to Senior Management's Knowledge, any other party thereto) is in material violation of, in default in respect of, nor has there occurred an event or condition which, with the passage of time giving of notice (or both) would constitute a material violation or default of, any Real Property Lease, any Personal Property Lease, or any Contract; and, to Senior Management's Knowledge, there are no facts or circumstances which would reasonably indicate that Elsinore Engineering (or any other party) will be or may be in material violation of or in default in respect of any Real Property Lease, any Personal Property Lease, or any Contract, subsequent to the date hereof. No notice has been received by EAS or Elsinore Engineering claiming any such default or indicating the desire or intention of any other party thereto to amend, modify, rescind or terminate the same to the extent that it would have a Material Adverse Effect on the business or assets of Elsinore Engineering. 3.2.17 ACCOUNTS RECEIVABLE, ETC. All of the Receivables of 18 Elsinore Engineering are set forth on Schedule 3.2.17, together with the value thereof. All such Receivables and Prepaid Expenses, together with any additional Receivables and Prepaid Expenses arising between the date hereof and the Closing Date (in each case net only of such allowances for doubtful accounts as disclosed on the September 30, 1996 Balance Sheet), (a) are or will be valid and subsisting, (b) represent or will represent sales actually made, (c) arose or will arise in the ordinary and usual course of the business of Elsinore Engineering, (d) except as set forth on Schedule 3.2.17, to the extent not collected prior to the Closing Date, will be due and enforceable according to their terms within 90 days after the date of the initial invoice therefor, and (e) are not and (except as may be caused by Buyer) will not be subject to any material counterclaim, set-off, defense, lien, charge or encumbrance of any nature. There has not been any material adverse change in the collectibility of the Receivables of Elsinore Engineering since September 30, 1996. Buyer will use its best efforts (as defined in Section 6.1.4) to collect the Receivables. 3.2.18 INVENTORIES. [No Rep.] 3.2.19 BACKLOG. All unfilled orders as of September 30, 1996 to purchase goods and services of Elsinore Engineering are set forth in Schedule 3.2.19 and all unfilled orders as of the Closing Date to purchase goods and services of Elsinore Engineering shall be set forth in a disclosure document provided by Seller to Buyer within thirty days of the Closing Date, and are firm and binding commitments (subject to cancellation rights set forth therein) of the respective purchasers (assuming that such purchaser has properly authorized by all requisite corporate or, if not a corporation, by all other requisite action and has properly executed and delivered such purchase order, which, to Senior Management's Knowledge, is the case) to purchase the goods indicated. 3.2.20 BOOKS OF ACCOUNT: RECORDS. Except for the qualifications (if any) explicitly set forth therein or in Schedule 3.2.20 the general ledgers, books of account and other financial records of Elsinore Engineering are complete and correct, have been maintained in accordance with good business practices and the matters contained therein are appropriately and accurately reflected in the Financial Statements. 3.2.21 MANAGERS, EMPLOYEES AND COMPENSATION. Schedule 3.2.21 sets forth the name of all managers and engineers of Elsinore Engineering, their respective terms of office, the total salary, bonus payments, fringe benefits and perquisites each received in each of the last 3 calendar years ended December 31, 1995 (or, if briefer, during their tenure of employment with Elsinore Engineering and any affiliate thereof), and changes to the foregoing which have occurred since December 31, 1995, together with the professional background of each manager and engineer for the last 5 years (as disclosed to Elsinore Engineering by such employee and, to Senior Management's Knowledge, correctly and completely); such Schedule also lists and described the current base salary, bonus payments, fringe benefits and perquisites of any other employee, agent or representative of Elsinore Engineering whose total current salary, bonus or other compensation exceeds $50,000 annually during any of the last 19 3 calendar years ended December 31, 1995, and changes to the foregoing since December 31, 1995. There are no other material forms of compensation paid to any such director, officer or employee of Elsinore Engineering. The provisions for wages and salaries accrued on the September 30, 1996 Balance Sheet are adequate for salaries and wages, including accrued vacation pay, for the period up through the date thereof, and Elsinore Engineering has accrued on its books and records all obligations to pay wages and salaries and other compensation to its employees, including, but not limited to, vacation pay and sick pay, and all commissions and other fees payable to agents, salesmen and representatives. ELP and EAS has filed any and all payroll tax returns, and paid all payroll taxes due for any and all Elsinore Engineering employees, due through the Closing Date. Except as set forth on Schedule 3.2.21, Elsinore Engineering has not become obligated, directly or indirectly, to any shareholder, director, officer or partner of ELP, EAS or any Seller or any member of their families, except for current liability for employment compensation. Except as set forth on Schedule 3.2.21, no shareholder, director, officer, partner, agent or employee of ELP, EAS or any Seller holds any position or office with or has any financial interest, direct or indirect, in any supplier, customer or account of, or other outside business which has transactions with Elsinore Engineering. Neither ELP, EAS nor Elsinore Engineering, nor, to Senior Management's Knowledge, any third party, has taken any action with respect to any shareholder, director, officer, partner, employee or representative of ELP, EAS or Elsinore Engineering to attempt to induce or which would influence any such person not to become associated with Buyer from and after the Closing Date or from serving Buyer in a capacity similar to the capacity presently held. Except to the extent as may have been previously disclosed to DAH by Sellers in writing, no employee of Elsinore Engineering, to Senior Management's knowledge, has a present intention to leave the employ of Elsinore Engineering or has taken any action directed towards leaving the employ of Elsinore Engineering. Except as set forth on Schedule 3.2.21, to Senior Management's Knowledge, no former employee of ELP, EAS is currently or intends to enter into competition with the business of Elsinore Engineering. 3.2.22 CREDIT TERMS: PRODUCT WARRANTIES. Schedule 3.2.22 sets forth all of the standard terms and conditions of credit and discounts given by Elsinore Engineering to its customers in the usual and ordinary course of its business and a list of all transactions pending where there is a material departure therefrom. 3.2.23 CONTRACTS WITH AFFILIATES. Any contract, commitment, lease, permit or other instrument, agreement, understanding or obligation (written or oral) between Elsinore Engineering and any affiliate of EAS or any Seller is described on Schedule 3.2.23 hereto, and is the equivalent of an "arms-length" transaction with a third party (except to the extent otherwise described in Schedule 3.2.23). 3.2.24 GOVERNMENT CONTRACTS. (a) For purposes of this Section 3.2.24, the term "Government" means any agency, division, 20 subdivision, audit group, or procuring office of the federal government, including the employees or agents thereof; the term "Government Contract" means any prime contract, subcontract, basic ordering agreement, letter contract, purchase order or delivery order of any kind, including all amendments, modifications and options thereunder or relating thereto, between the Elsinore Engineering and any of the Government, any prime contractor of the Government, any subcontractor of such a prime contractor or any subcontractor of another subcontractor, however far removed from the prime contractor such subcontractor may be, (A) currently in force; (B) which, within the three years preceding the date of this Agreement, expired or were terminated; or (C) for which final payment was received within the three years preceding the date of this Agreement; and the term "Bid" means any outstanding quotation, bid or proposal submitted by Elsinore Engineering to the Government, any proposed prime contractor of the Government, or any proposed subcontractor. (b) Elsinore Engineering is not a party to any Government Contract and has not submitted any Bids [which have not expired]. (c) Except as set forth in Schedule 3.2.24, (A) no show cause notices, cure notices, or terminations have been issued against the Elsinore Engineering with respect to any Government Contract; (B) no negative determinations of responsibility have been issued against the Elsinore Engineering with respect to any Bid and (C) none of the Government, any prime contractor nor any subcontractor has notified the Elsinore Engineering, either orally or in writing, that it is in breach or violation of any provision of any Government Contract, any certification or representations with respect thereto or any statutes and regulations applicable thereto. (d) Elsinore Engineering is not undergoing and has 21 not undergone any audit, and has no knowledge or reason to know of any basis for impending audits in the future, arising under or relating to any Government Contract except as set forth in Schedule 3.2.24. 3.2.25 SOLVENCY. The total assets of ELP and each of the Sellers exceed their respective total liabilities (excluding, in the case of ELP, liabilities to or guaranteed by its affiliates); and ELP and each of the Sellers generally are able to perform their respective financial obligations as performance thereof becomes due. 3.2.26 ALLOCATIONS. Except as noted in the Financial Statements, all payments in respect of administrative overhead or similar allocative costs which Elsinore Engineering has made or is obligated to make to ELP have been omitted from the Financial Statements. 3.2.27 COMPLETE DISCLOSURE. No representation or warranty made by ELP or any of the Sellers in this Agreement, and no exhibit, schedule, statement, certificate or other information furnished to Buyer by or on behalf of ELP or any Seller pursuant to this Agreement or in connection with the transactions contemplated hereby or thereby, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary in light of the circumstances to make the statements contained herein and therein not misleading. 4. INDEMNIFICATION. 4.1 Lyon and ELP, with full recourse, jointly and severally, hereby indemnify and hold harmless DAH and Buyer from any claims loss, damages or expenses as a result of any breach of any representation made in this Agreement by ELP or Lyon. The indemnification made in this Section 4 shall continue until (i) with respect to any Materially Misleading statement or information (as defined below), the end of the applicable statute of limitations from actual discovery or (ii) otherwise, the second anniversary of the Closing Date. For the purposes of this Section 4, a statement, representation, warranty or other information is "Materially Misleading" when it contains any untrue statement of material fact or omits to state a material fact necessary in light of the circumstances to make the statements or other information contained therein not misleading. 4.2 Without limiting the generality of the foregoing, ELP and Lyon, jointly and severally, agree to pay to DAH in immediately available funds (cash) within 5 days of receipt of notice from DAH (i) an amount equal to the difference between (a) the Accounts Receivable on the Closing Date Balance Sheet (less the stated allowance for doubtful accounts and less the amount of any billed Accounts Receivable for which payment arrangements which Buyer has designated to such obligor as satisfactory to it have. been made) and (b) such of the Accounts Receivable described in clause (a) have been collected by Buyer (which Buyer agrees to use diligent efforts to collect) between the Closing Date and the date 120 days following the Closing Date, and (ii) in the event 22 of the cancellation of any item of backlog specified in Schedule 3.2.19 hereto, an amount equal to 10% of the dollar amount of the goods and services canceled. Buyer's obligations with respect to collection shall be deemed satisfied if it continues the collection practices of Elsinore. 5. ASSUMPTION OF CERTAIN LIABILITIES: NO ASSUMPTION OF OTHER LIABILITIES. 5.1 On the Closing Date, Buyer will assume: 5.1.1 ACCOUNTS PAYABLE. All accounts payable for current liabilities by Elsinore Engineering as of September 30, 1996 and as incurred in the ordinary course of business from September 30, 1996 through the Closing Date. A schedule of the Accounts Payable of Elsinore Engineering as of September 30, 1996 is attached as Schedule 5.1.1; 5.1.2 ACCRUED OPERATING EXPENSES. All accrued operating expenses which were incurred by Elsinore Engineering as of September 30, 1996 and as incurred in the ordinary course of business from September 30, 1996 through the Closing Date and which are reflected as a liability on the balance sheets for Elsinore Engineering as of September 30, 1996 and as of the Closing Date, respectively. Attached as Schedule 5.1.2 is a balance sheet as at September 30, 1996; 5.1.3 LEASE(S). The leases specified on Schedule 1.1.1 and Schedule 1.1.2; prior to the Closing, ELP shall have obtained the written consents of the lessors named on Schedule 1.1.1; 5.1.4 OPEN PURCHASE CONTRACTS. The obligation of ELP to perform those purchase contracts and related purchase orders in existence on the Closing Date which were incurred by ELP in the ordinary course of business and.are disclosed in Schedule 1.1.6 at "List of Agreements" Part I; provided, however, that only the obligations to deliver goods and services (including warranties) are being assumed and Buyer does not assume any other liability, risk or exposure of Elsinore Engineering or ELP; Buyer does not assume the risk of any claim for any loss, damage, or exposure asserted by any party to any contract for occurrences prior to the Closing Date. 5.1.5 CURRENT LIABILITIES FROM OPERATIONS IN THE ORDINARY COURSE. Those obligations of Elsinore Engineering which have been incurred from and after September 30, 1996, in the ordinary course of business and which are expressly permitted by the affirmative covenants and not prohibited by the negative covenants set forth in Section 6.2 of this Agreement; 5.1.6 WARRANTY AND RELATED OBLIGATIONS. To the extent that work is requested and ELP grants prior written approval to Buyer to do such work, and subject to the provisions of Section 6.2.12, the obligation to provide warranty and related work in any agreement of Elsinore Engineering as disclosed on Schedule 1.1.6 and which are hereby assumed, it being acknowledged by Buyer that included in such work is the work relating to the Crew Rest Program licensed from Qantas performed for Virgin 23 Atlantic, as to which Buyer hereby agrees to retain all data provided by Seller. 5.1.7 ROYALTIES AND LICENSE FEES. To the extent of Royalties for Patents and License Fees specified in Schedule 5.1.7, the Royalties and License Fees which appear on the Schedule. 5.1.8 VACATION, SICK LEAVE AND PENSION BENEFITS. To the extent reserved for in the balance sheet as of September 30, 1996 and as incurred in the ordinary course of business from September 30, 1996 through the Closing Date, to pay for vacation time, sick leave and to provide pension benefits as specified on Schedule 5.1.8. 5.1.9 DAIMLER-BENZ CONTRACT. Buyer will assume all obligations, including those of performance, and liabilities under, and the risk of profit or loss and the risk of completion of, that certain STC Development Agreement by and between Elsinore LP and Daimler-Benz Aerospace Airbus GmbH dated as of June 7, 1996 (the "Daimler-Benz Contract"), a copy of which is attached hereto as Schedule 5.1.9. 5.1.10 STC's. All obligations in connection with the ownership and maintenance of the STC's transferred pursuant to Section 1.1.5 hereof. 5.2. LIABILITIES NOT ASSUMED. With the exception of the liabilities assumed pursuant to Section 5.1, Buyer shall not by the execution or performance of this Agreement, or otherwise, assume or otherwise be responsible for any liability or other obligation of Elsinore Engineering or ELP of any kind, nature or description, whether such liability or obligation is mature or not, liquidated or unliquidated, fixed or contingent, known or unknown, whether arising out of occurrences prior to, at or after the date of this Agreement, including without limitation, those rising from breach of contract, breach of any warranty, infringement, fraud, violation of any law, rule or regulation, or out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim or other demand. Without limiting the foregoing, no liabilities related to the Grand Prairie Facility are being assumed pursuant to this Agreement. 6. COVENANTS. 6.1 COVENANTS OF BUYER 6.1.1 PAYMENT AND PERFORMANCE OF ASSUMED LIABILITIES. From and after the Closing Date, Buyer shall pay and perform the liabilities assumed pursuant to Section 5.1 in the ordinary course of its business in accordance with Buyer's standard business practices. 6.1.2 USE OF NAME. Seller owns the name "Elsinore" and gives DAH the right to use the name Elsinore Aerospace Services, Inc., Elsinore LP, EAS and ELP only so long as reasonably necessary for EAS to maintain its DAS with the FAA. At such time as the FAA agrees that a change of name will have no adverse 24 effect on the DAS, DAH will cause EAS to change its name to a name which does not include the name "Elsinore." DAH will diligently pursue such name change. DAH agrees not to use the Elsinore logo and acknowledges the exclusive ownership of such logo by Sellers. Sellers and their affiliates shall have the right to continue to use the name "Elsinore Aerospace Services, Inc." in connection with normal post closing matters arising after the consummation of the Agreement, including but not limited to, settlement of disputes, documentation, etc. Elsinore may use the name "Elsinore LP" for any purpose. 6.1.3 HOLD HARMLESS. DAH and Buyer agree to indemnify and hold harmless Seller from any liabilities to third parties arising from the operations or business of Elsinore Engineering on and after the consummation of the transactions contemplated herein on the Closing Date, except to the extent caused by the gross negligence or willful misfeasance of Seller. 6.1.4 DUTY TO COLLECT ACCOUNTS RECEIVABLE. Buyer and DAH shall use their best efforts to collect accounts receivable outstanding at the Closing Date. As used in this Section 6.1.4, "best efforts" shall be deemed to have been used so long as Buyer continues the accounts receivable collection practices used by Elsinore Engineering prior to the date of this Agreement. 6.1.5 EMPLOYEES. From and after the Closing Date, Buyer and DAH shall employ substantially all of the current employees of Elsinore Engineering, subject to normal management prerogatives to review performance and terminate employment as necessary or appropriate for the business. The Buyer and DAH shall compensate such employees at substantially the same level of compensation in effect for such employees and shall continue to recognize each employee's seniority status as under current Elsinore Engineering practice. Buyer and DAH will continue normal fringe benefits for such employees subject to the integration of such fringe benefits with Buyer's and DAH's current programs. 6.1.6 BUYER'S WORKING CAPITAL. DAH covenants that it will (i) initially provide and (ii) continue to provide for a period of 5 years from the Closing Date sufficient working capital for Buyer to (i) perform the obligations assumed by Buyer pursuant to Section 5 of this Agreement and (ii) for any business activities other than the performance of obligations assumed pursuant to Section 5 of this Agreement. The forgoing are the only purposes for which DAH shall have obligations to provide working capital to Buyer. 6.1.7 KITTING. On the Closing Date, Buyer and ELP will enter into a Kitting Subcontract Agreement in the form of EXHIBIT A-1 to the Agreement and a Warranty Subcontract Agreement in the form of EXHIBIT A-2 to the Agreement. 6.2 COVENANTS OF ELP AND LYON. 6.2.1 COVENANT AGAINST HIRING. Each of ELP and Lyon understand that it is essential to the successful operation of the business to be acquired 25 hereunder that Buyer retain substantially unimpaired Elsinore Engineering's operating organization. Each of ELP and Lyon agrees that neither he nor it shall purposefully take any action which would induce any employee or representative of ELP not to become or continue as an employee or representative of Buyer. Without limiting the generality of the foregoing, neither Elsinore Engineering nor Lyon shall, whether directly or indirectly through any subsidiary or affiliate, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was an employee of ELP at any time from January 1, 1996, until the Closing Date as listed on Schedule 6.2.1; provided, however that ELP and Lyon may solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, William B. Ashworth, David Lagger and T.J. Moran for any purpose not competitive with the business of Elsinore Engineering or Hollingsead International, Inc. as they exist on the Closing Date. 6.2.2 INJUNCTIVE RELIEF. Each of ELP and Lyon acknowledges and agrees that Buyer's remedy at law for any breach of any of ELP's or Lyon's obligations under Subsections 6.2.1 or 6.2.3 hereof would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in a proceeding which may be brought to enforce any provision of Subsections 6.2.1 or 6.2.3 Seller recognizes that damages would not be an adequate remedy. The rights and remedies conferred upon Buyer under this Section 6.2.2, elsewhere in this Agreement, or by any instrument or law shall be cumulative and may be exercised singularly or concurrently. 6.2.3 CONDUCT OF BUSINESS OF ELP PRIOR TO CLOSING DATE. Each of ELP and Lyon agrees that on and after the date hereof and prior to the Closing Date: (a) The business and operations, activities and practices of Elsinore Engineering shall be conducted only in the ordinary course of business and consistent with past practice; (b) No change shall be made in the articles of incorporation or bylaws of EAS, except as is necessary to comply with Section 6.1.2 hereof; (c) No change shall be made in the number of shares of authorized or issued capital stock of EAS; nor shall any option, warrant, call, right, commitment or agreement of any character be granted or made with respect to a general partnership interest in ELP, except immediately prior to the Closing, but after the execution of this Agreement, ELP will remove EAS as its 26 general partner and substitute Elsinore Services Corporation as its general partner; (d) Neither ELP nor Lyon shall, directly or indirectly, solicit or encourage (including by way of furnishing any non-public information concerning the business, properties or assets of Elsinore Engineering), or enter into any negotiations or discussions concerning, any Acquisition Proposal (as defined below). ELP and Lyon will notify Buyer promptly by telephone, and thereafter promptly confirm in writing, if any such information is requested from, or any Acquisition Proposal is received by ELP or Lyon. As used in this Agreement, "Acquisition Proposal" shall mean any proposal received by ELP or Lyon prior to the Closing Date for a merger or other business combination involving Elsinore Engineering or for the acquisition of, or the acquisition of a substantial equity interest in, or any material part of the assets of, Elsinore Engineering other than the one contemplated by this Agreement. (e) Except as set forth in Schedule 6.2.3(e), Elsinore Engineering will not, and ELP will not cause or permit Elsinore Engineering to: (i) incur, become subject to, or suffer, or agree to incur, become subject to or suffer, any obligation or liability (absolute or contingent) except current liabilities incurred, and obligations under contracts entered into, in the ordinary course of business; (ii) discharge or satisfy any lien or encumbrance or pay any obligation or liability (absolute or contingent) other than liabilities payable in the ordinary course of business; (iii) mortgage, pledge or subject to lien, charge or any other encumbrance, any of the Property or agree so to do; (iv) sell or transfer or agree to sell or 27 transfer any of its assets, or cancel or agree to cancel any debt or claim, except in each case in the ordinary course of business; (v) consent or agree to a waiver of any right of substantial value; (vi) enter into any transaction other than in the ordinary course of its business; (vii) without the express written consent of Buyer, increase the rate of compensation payable or to become payable by it to any Restricted Employee over the rate being paid to such Restricted Employee at September 30, 1996; (viii) increase the rate of compensation payable or to become payable by it to any Non-Restricted Employee over the rate being paid to such Non-Restricted Employee at September 30, 1996, other than in the ordinary course of business and in accordance with Elsinore Engineering's past practice; (ix) except in the ordinary course of business, terminate any contract, agreement, license or other instrument to which it is a party; (x) through negotiation or otherwise, make any commitment or incur any liability or obligation to any labor organization; (xi) without the express written consent of Buyer, make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Restricted Employee; (xii) make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Non-Restricted Employee, other than in the ordinary course of business 28 and in accordance with Elsinore Engineering's practice; (xiii) without the express written consent of Buyer, directly or indirectly pay or make a commitment to pay any severance or termination pay to any Restricted Employee; (xiv) directly or indirectly pay or make a commitment to pay any severance or termination pay to any Non-Restricted Employee, other than in the ordinary course of business and in accordance with Elsinore Engineering's past practice; (xv) introduce any new method of management, operation or accounting with respect to its business or any of the assets, properties or rights applicable thereto; (xvi) offer or extend more favorable prices, discounts or allowances than were offered or extended regularly on and prior to September 30, 1996, other than in the ordinary course of business; (xvii) make capital expenditures or commitments therefor without the express written consent of Buyer; and (xviii) hire any employee earning a wage or salary of more than $30,000 per year. (f) ELP and Lyon will use their respective best efforts to preserve Elsinore Engineering's business organization intact, to keep available to Elsinore Engineering the present service of Elsinore Engineering's employees, and to preserve for Elsinore Engineering the goodwill of its suppliers, customers and others with whom business relationship exist; and (g) Neither ELP nor Lyon will take, agree to take or permit to be taken any action or do or permit to be done anything in the conduct of the 29 business of Elsinore Engineering, or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement or which would cause any of the representations or warranties of ELP or Lyon contained herein to be or become untrue in any material respect. 6.2.4 INSPECTION OF BOOKS AND RECORDS. From the date of this Agreement until the Closing Date, ELP shall make or cause to be made available to Buyer for examination the property and other materials such as books of account, contract, agreements, commitments, records and its documents directly relating to Elsinore Engineering and its business and shall permit Buyer and its representatives, attorneys, accountants and agents to have access to and to copy, at Buyer's expense, the same at all reasonable times. In addition, ELP shall make, or cause to be made, available to Buyer and its representatives, attorneys, accountants and agents the property and all of the above described records for any environmental compliance audit, any environmental site assessment (including soil, groundwater and/or other testing) and any other physical inspection which Buyer may elect to conduct at its own expense. 6.2.5 FURTHER ASSURANCES. On and after the Closing Date, Elsinore Engineering and Lyon shall prepare, execute and deliver, at their expense, such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action as Buyer shall reasonably request at any time or from time to time in order to perfect, confirm or evidence in Buyer title to all or any part of the property or to consummate, in any other manner, the terms and conditions of this Agreement. 6.2.6 PRESS RELEASES AND ANNOUNCEMENTS. Neither Elsinore Engineering, Lyon, Buyer nor DAH shall issue any press release or announcement relating to the subject matter of this Agreement without the prior written approval of the other parties hereto; PROVIDED, HOWEVER that Elsinore Engineering, Lyon, Buyer or DAH may make any public disclosure he or it believes in good faith is required by law (in which case he or it will advise the other parties hereto prior to making the disclosure). On the Closing Date, ELP, the Buyer and DAH will issue public announcements and/or press releases previously mutually agreed to by Seller, DAH and Buyer as to form and content, announcing the transaction contemplated by this Agreement. 6.2.7 [Intentionally left blank.] 6.2.8 DELIVERY OF FINANCIAL STATEMENTS. No later than 30 days after the Closing Date, ELP and Lyon shall deliver to Buyer and DAH the balance sheet of Elsinore Engineering as at the Closing Date and the related statements of income, retained earnings and cash flows for the year to date then ended (the "Closing Date Financial Statements") and which shall be true, correct and complete, shall have been prepared from and are in accordance with the books and records of Elsinore Engineering and ELP and, except as disclosed in the Schedules to this Agreement or in the Financial Statements or related notes by Seller, shall have been prepared in conformity with 30 generally accepted accounting principles applied on a consistent basis for such periods using an accrual basis method, reflect sufficient reserves for asserted and potential products liability claims, and fairly present the financial condition of Elsinore Engineering as of the dates stated and the results of operations of Elsinore Engineering for the periods then ended in accordance with such practices. The Financial Statements (including all notes accompanying such statements) shall not disclose any event or circumstance materially adversely affecting Elsinore Engineering or its businesses. The Closing Date Financial Statements shall upon delivery to Buyer become part of the Financial Statements as defined herein for all purposes hereof. 6.2.9 TRADE SECRETS AND CONFIDENTIAL KNOW-HOW. Between the date hereof and the Closing Date, ELP and Lyon and their representatives shall, upon request by Buyer, reduce to writing all trade secret information or other know-how of a business or technical nature which is now used in or which is useful for the present or anticipated future business of Elsinore Engineering, such writing to be confidential and afforded such protection and confidential treatment as Buyer shall reasonably request. 6.2.10 SALES TAXES, UNEMPLOYMENT INSURANCE, ETC. Without limiting any other term hereof, ELP shall pay all sales taxes and unemployment insurance premiums to be paid in respect of Elsinore Engineering and the Property through the Closing Date. 6.2.11 INDEMNITY REGARDING BULK SALES, ETC. Lyon and ELP jointly and severally hereby agree to indemnify and hold harmless DAH and Buyer from any claims, costs or losses incurred as a result of the failure of ELP or Elsinore Engineering to comply with any and all requirements of sales tax and bulk sales laws and regulations arising under California law in connection with the transactions contemplated by this Agreement. 6.2.12 WARRANTY AND RELATED WORK AFTER CLOSING DATE. To the extent that Elsinore Engineering has not adequately reserved on its balance sheet as of the Closing Date for the following costs under this Section 6.2.12, ELP shall reimburse Buyer for Buyer's actual direct cost of material and labor incurred in respect of any warranty or related work completed by Buyer pursuant to its liabilities assumed under Section 5. No SG&A or overhead charge is to be applied. 6.2.13 HOLD HARMLESS. ELP and Lyon agree to indemnify and hold harmless DAH and Buyer from any liabilities to third parties arising from the operations or business of Elsinore Engineering at any time prior to the consummation of the transactions contemplated herein on the Closing Date, except to the extent caused by the actions, gross negligence or willful misfeasance of DAH or Buyer. 7. CLOSING AND CONDITIONS PRECEDENT. 7.1 CLOSING DATE. The date upon which the transactions contemplated hereby shall become effective December 5, 1996 (the "Closing Date") upon which each of the conditions precedent set forth in Sections 7.2 and 7.3 shall have been satisfied 31 or waived pursuant to the respective terms thereof. 7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF DAH AND BUYER. Each and every obligation of DAH and Buyer to be performed on the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions (unless waived in writing by DAH and Buyer): ELP shall have delivered to Buyer each of the following, in each case duly and properly executed (if appropriate) and in form and substance reasonably satisfactory to the Buyer: 7.2.1 DAH in its sole and absolute discretion shall be satisfied that the transactions contemplated by this Agreement and the changes in ownership of EAS and Elsinore Engineering will not result in the termination or restriction of the Designated Alternation Station Certificate ("DAS") owned by EAS. The rights of DAH in this Section 7.2.1 shall terminate on November 14, 1996 (the "Termination Date"); at any time on or prior to the Termination Date, DAH may terminate its obligations to purchase as provided in this Agreement by giving notice to Lyon and ELP in the event that DAH in its sole and absolute discretion determines that as a result of this Agreement or the transactions contemplated by it, or any provision of it, including, without limitation, the transfer of the stock of EAS or the assets of Elsinore Engineering, the FAA might terminate or restrict the DAS of EAS. 7.2.2 Good and sufficient assignments of each Real Property Lease, conveying all of ELP's right, title and interest in and to such Real Property Lease, free and clear of all mortgages, pledges, liens, security interest, encumbrances, restrictions and claims of any nature whatsoever, except those listed on Schedule 1.1.1. 7.2.3 Written consents of the lessors under each Real Property Leases to the assignment of such Real Property Leases, with no adverse condition attached. 7.2.4 A good and sufficient General Conveyance, Assignment and Bill of Sale in the form of EXHIBIT G, conveying, selling, transferring and assigning to Buyer title to all of the Personal Property free and clear of all security interests, liens, charges, encumbrances or equities whatsoever. 7.2.5 Motor Vehicle Certificates of Title to each of the Vehicles, endorsed for transfer to Buyer. 7.2.6 The Closing Date may be extended by DAH in the event that on or before the Closing Date any party to any contract of which consent is required as a provision of such contract in which there is consideration of $250,000, or parties to any group of contacts in which there is consideration of $400,000 in the aggregate, have not consented to the assignment to Buyer, provided, however, that in no event shall the Closing Date be extended beyond November 30, 1996. 7.2.7 Copies of each of the Permits, together with evidence satisfactory to Buyer that the same are in full force and effect, and (to the extent 32 requested by Buyer) evidence that such permits are eligible for immediate transfer to Buyer. 7.2.8 The books and records described in Section 3.2.20; each of the Financial Statements described in Section 3.2.4; the Closing Date Financial Statements to be delivered pursuant to Section 6.2.8, together with evidence satisfactory to the Buyer of the payment by EAS of all amounts due to the relevant taxing authorities pursuant thereto. 7.2.9 Evidence satisfactory to DAH and Buyer and their counsel that the execution and delivery of this Agreement has been authorized by ELP. 7.2.10 A favorable opinion of Irell & Manella, counsel for ELP and Lyon, addressed to Buyer and DAH and dated the Closing Date, in the form of EXHIBIT B attached hereto. 7.2.11 The Articles of Incorporation of EAS, certified as of a recent date by the Secretary of State of California. 7.2.12 The Bylaws of EAS, certified as true and complete by the Corporate Secretary of ELP. 7.2.13 A certificate of the California Secretary of State, each dated as of a date not earlier than ten days prior to the Closing Date, as to the good standing of EAS and the payment of all corporate franchise taxes), together with facsimile confirmation of such good standing on the Closing Date. 7.2.14 An affidavit of the Chief Executive Officer or Chief Financial Officer of ELP stating that ELP is not a foreign seller within the meaning of the Internal Revenue Code of 1986, as amended. 7.2.15 Such other consents as Buyer deems necessary in order to consummate the transactions contemplated herein. 7.2.16 Such other separate instruments of sale, assignment or transfer that Buyer may reasonably deem necessary or appropriate in order to perfect, confirm or evidence title to all or any part of the Property. 7.2.17 In its reasonable judgment, DAH shall be satisfied with the completion of its due diligence and [shall have obtained the consent of its senior lender and of its subordinated lender of the transaction contemplated by this agreement]. 7.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF ELP AND LYON. Each and every obligation of ELP and Lyon to be performed on or before the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions (unless waived in writing by ELP and Lyon): The Buyer shall have delivered to ELP each of the following, in each case duly and properly executed (if appropriate) 33 and in form and substance reasonably satisfactory to ELP: 7.3.1 Payment of an amount equal to $1 million in immediately available funds (cash) on the Closing Date. 7.3.2 Resolutions of the directors of Buyer and DAH authorizing the execution and delivery of this Agreement by Buyer and DAH respectively and the performance of their respective obligations hereunder, certified by the Corporate Secretaries of Buyer and DAH, respectively. 7.3.3 An opinion of Spolin & Silverman, counsel for Buyer and DAH, addressed to ELP and Lyon and dated the Closing Date, in the form of EXHIBIT C attached hereto. 7.3.4 The Assumption Agreement with respect to the Assumed Liabilities, in the form of EXHIBIT D attached hereto. 7.3.5 A termination of the guaranty of Air/Lyon Associates, L.P. in favor of Daimler-Benz in the form of EXHIBIT E attached hereto. 7.3.6 Execution of a promissory note (the "Note") by DAH in favor of Seller in the form of EXHIBIT F attached hereto. 8. MISCELLANEOUS PROVISIONS. 8.1 NOTICE. All notices and other communications required or permitted under this Agreement shall be in writing and shall be effective upon receipt and shall be delivered by commercial courier providing proof of delivery to such address as may be designated from time to time pursuant to this Section 8.1 by the parties hereto and which addresses will initially be as set forth below: If to DAH or Buyer: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: R. Jack DeCrane Fax No. (310) 536-0257 with a copy to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, Ohio 44321 Fax No. (216) 668-2518 If such notice asserts a breach of this Agreement, a copy to: Spolin & Silverman 34 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman Fax No. (310) 576-4844 If to Lyon: William Lyon 4490 Von Karmen Avenue Newport Beach, California 92660 Fax No. (714) 476-8121 If to ELP: Elsinore LP John Wayne/Orange County Airport 19300 Ike Jones Road Santa Ana, California 92707 Attention: Denis P. Kalscheur Fax No. (714) 261-6917 If such notice asserts a breach of this Agreement, a copy to: Irell & Manella 1800 Avenue of the Stars, Suite 900 Los Angeles, California 90067 Attention: Louis M. Castruccio, Esq. Fax No. (310) 203-7199 8.2 ARBITRATION OF DISPUTES. Except for actions seeking injunctive relief, which may be brought before any court having jurisdiction, any claim arising out of or relating to (i) this Agreement, including, but not limited to, its validity, interpretation, enforceability or breach, or (ii) the relationship between the parties (including its commencement and termination) which are not settled by agreement between the parties, shall be settled by arbitration conducted exclusively in Los Angeles, California before a retired Judge of the Superior Court in an arbitration proceeding conducted in accordance with the rules then in effect of the Judicial Arbitration and Mediation Services ("JAMS"). The decision of the Arbitrator shall be final and binding on the parties, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The parties hereby consent to the in personam jurisdiction of the courts of the State of California for the purposes of confirming any such award and entering judgment thereon. In any arbitration proceedings hereunder, (a) all testimony of witnesses shall be taken under oath; (b) discovery will be allowed to the same extent as available under the rules then applicable to civil actions under California law; (c) upon conclusion of any arbitration, the arbitrator shall render findings of fact and conclusions of law in a written opinion setting forth the basis and reasons for any decision reached and deliver such documents to-each party to this Agreement along with a signed copy of the award; and 35 (d) the rules of evidence as then applicable to civil actions under California law shall be applied in the arbitration. Each party agrees that the arbitration provisions of this Agreement are its exclusive damage remedy and expressly waives any right to seek redress in another forum. 8.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, and the documents referred to herein and therein embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, relative to said subject matter. 8.4 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and obligations arising hereunder shall inure to the benefit of and be binding upon ELP, its successors and permitted assigns, Buyer and DAH, their respective successors and permitted assigns, and Lyon, his heirs, legal representative and permitted assigns. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party or parties except that Buyer shall have the right to assign, in whole or in part, its rights hereunder to one or more affiliates of Buyer, which in each case shall be a wholly-owned subsidiary of Buyer. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect; it being acknowledged and agreed however, that notwithstanding any such agreement, DAH and Buyer shall remain primarily liable hereunder. 8.5 CAPTIONS. This Agreement and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 8.6 WAIVER; CONSENT. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any condition of this Agreement or breach by the other party of any of its obligations or representations hereunder or thereunder shall be deemed to be a waiver of any other condition or subsequent or prior breach of the same or any other obligation or representation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. 8.7 NO THIRD PARTY BENEFICIARIES. Subject to Section 7.3, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto, any rights, remedies or other benefits under or by reason of this Agreement. 36 8.8 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 8.9 SEVERABILITY. With respect to any provision of this Agreement finally determined to be unenforceable, ELP, Lyon, DAH and Buyer hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision [of this Agreement] cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 8.10 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the State of California. 8.11 EXPENSES. Whether or not the transactions are consummated, none of the parties hereto shall have any obligation to pay any of the fees and expenses of any other party incident to the negotiation, preparation and execution of this Agreement or any related agreements, including the fees and expenses of counsel, accountants, investment bankers and other experts. DeCrane Aircraft Holdings, Inc., an Ohio corporation /s/ R G MacDonald - --------------------------------------- By: R G MacDonald Its President EE Acquisition, Inc., a Delaware corporation /s/ R G MacDonald - --------------------------------------- By: R G MacDonald Its President - --------------------------------------- William Lyon, individually Elsinore LP, a California Limited Partnership 37 8.8 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument 8.9 SEVERABILITY. With respect to any provision of this Agreement finally determined to be unenforceable, ELP, Lyon, DAH and Buyer hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law. and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision [of this Agreement] cannot be reformed, Such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 8.10 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the taws of the State of California. 8.11 EXPENSES. Whether or not the transactions are consummated, none of the parties hereto shall have any obligation to pay any of the fees and expenses of any ether party incident to the negotiation, preparation and execution of this Agreement or any related agreements, including the fees and expense of counsel, accountants, investment bankers and ether experts. DeCrane Aircraft Holdings. Inc., an Ohio corporation /s/ R G MacDonald - --------------------------------------- By: R G MacDonald Its President EE Acquisition, Inc., a Delaware corporation /s/ R G MacDonald - --------------------------------------- By: R G MacDonald Its President /s/ William Lyon - --------------------------------------- William Lyon, individually Elsinore LP, a California Limited Partnership 37 By: ELSINORE AEROSPACE SERVICES, INC. Its General Partner /s/ Denis P. Kalscheur - --------------------------------------- By: Denis P. Kalscheur President 38 SCHEDULE A TO ASSET PURCHASE AND SALE AGREEMENT DEFINITIONS "Acquisition Proposal" .............................................. 6.2.3(d) "Elsinore Engineering" .............................................. Preamble "Agreement" ......................................................... Preamble "ELP" ............................................................... Preamble "EAS Common Shares" .................................................... 3.2.2 "Approvals" ............................................................ 1.1.4 "Bid" ................................................................. 3.2.24 "Buyer" ............................................................. Preamble "CERCLA" .............................................................. 3.2.10 "COBRA" ............................................................... 3.2.15 "Commitment" .......................................................... 3.2.23 "Closing Date" ........................................................... 7.1 "Closing Date Financial Statements" .................................... 6.2.8 "Contracts" ............................................................ 1.1.6 "DAH" ............................................................... Preamble "Deposits" ............................................................. 1.1.8 "Employee Benefit Plan" ............................................... 3.2.15 "ERISA" ............................................................... 3.2.15 "Financial Statements" ................................................. 3.2.4 "Government" .......................................................... 3.2.24 "Government Contract" ................................................. 3.2.24 "Hazardous substance" ................................................. 3.2.10 "Machinery and Equipment" .............................................. 1.1.2 "Material Adverse Effect" ............................................. 3.2.12 "Non-Restricted Employees" ................................................. ? "Other Claims" ........................................................ 1.1.11 "Parts and Furniture" .................................................. 1.1.2 "Permits" .............................................................. 3.2.5 "Personal Property Leases" ............................................. 1.1.2 "Prepaid Expenses" ..................................................... 1.1.8 "Lyon" .............................................................. Preamble "Proprietary Rights" ....................................................... ? "Real Property" ............................................................ 2 "Purchase Price" ........................................................... 4 "Real Property Leases" ................................................. 1.1.1 "Receivables" .......................................................... 1.1.7 "Registrations" ............................................................ ? "Release" ............................................................. 3.2.10 "Restricted Employee ....................................................... ? "Termination Claims" ................................................... 1.1.9 39 "Tooling" .............................................................. 1.1.2 "Transferor" .......................................................... 3.2.24 "Vehicles" ............................................................. 1.1.3 40 EX-10.20 20 EXHIBIT 10.20 10.20 ASSET PURCHASE AND SALE AGREEMENT, DATED NOVEMBER 25, 1996 AMONG AMP INCORPORATED, THE WHITAKER CORPORATION AND REGISTRANT - ------------------------------------------------------------------------------ ASSET PURCHASE AND SALE AGREEMENT DATED AS OF NOVEMBER 25, 1996 AMONG AMP INCORPORATED, THE WHITAKER CORPORATION AND DECRANE AIRCRAFT HOLDINGS, INC. - ------------------------------------------------------------------------------ ASSET PURCHASE AND SALE AGREEMENT ACQUISITION OF ASSETS OF MANUFACTURING ACTIVITIES OF AMP INCORPORATED COMMONLY REFERRED TO AS QUALITRONIX BY DECRANE AIRCRAFT HOLDINGS, INC. This Asset Purchase and Sale Agreement ("Agreement") is made and entered into by and among AMP Incorporated ("AMP"); The Whitaker Corporation ("Whitaker") only with respect to certain specific provisions of this Agreement pertaining to proprietary rights and intellectual property; and DeCrane Aircraft Holdings, Inc. ("DAH"), based on the following facts: AMP is the owner of and desires to sell all of the assets as relate to its cold heading and contact fabrication operations (the "Contact Products") conducted at its facility located at 45-C Parker Street, Irvine, California, 92718-1606 (the "Irvine Facility") and as necessary to build and manufacture such Contact Products and operate the Irvine Facility as it is currently being operated, all of which is commonly referred to as the QUALITRONIX activities. (Hereinafter for purposes of convenience referred to as "Qualitronix"). Whitaker is the owner of certain proprietary rights and intellectual property with respect to Qualitronix. Wherever the context shall require, reference to Qualitronix shall mean "AMP with respect to the manufacturing activities commonly identified as Qualitronix and the Assets to be acquired pursuant to this Agreement", or its equivalent as appropriate). Wherever the context requires a covenant, agreement or warranty and representation is made or required by Whitaker, such shall also mean AMP shall cause Whitaker to perform such covenant or agreement and make such warranty and representation, whether or not specifically stated. DAH desires to purchase the assets, proprietary rights and intellectual property of Qualitronix; The parties desire to enter into certain supply contracts whereby (i) AMP shall agree to purchase from DAH and DAH shall agree to sell to AMP all of AMP's 1997 requirements for Contact Products to be used in kits and internal assemblies for cylindrical connectors ("Cylindrical Supply Contract") and (ii) AMP shall agree to purchase from DAH and DAH shall agree to sell to AMP all of AMP'S 1997 and 1998 requirements for Contact Products to be used for non-cylindrical connectors (which AMP either resells or uses in its internal assembly as part of other products) (the "Non-Cylindrical Supply Contract") according to the terms and conditions set forth therein, (the "Cylindrical Supply Contract" and "Non-Cylindrical Supply Contract" may sometimes collectively be referred to as the "Supply Contracts"). For the purposes of provisions relating only to the Supply Contracts, AMP shall mean the Aerospace Government Systems Sector of AMP. Terms set forth herein with quotation marks " " are defined terms and shall have the meaning set forth wherever located. The term "Agreement" shall mean this Asset Purchase and Sale Agreement and any schedules, exhibits or other documents, including the Supply Contracts, referred to herein as being a part of the agreements among the parties. References herein to "financial statements", "balance sheet", "income statement" or "books and records" shall mean and refer to one or more schedules prepared by AMP, containing the information specified, prepared to the extent reasonably possible, in such a manner as if Qualitronix were a stand alone, separate entity for which separate books, records and accounts were maintained in accordance with the customary practices of AMP consistently applied. The preamble, definitions and references hereinabove shall be deemed an integral part of the Agreement. Based on the foregoing preamble, facts and circumstances, the parties hereby agree as follows 1. ASSETS TO BE PURCHASED AND SOLD. 1.1 THE QUALITRONIX ASSETS. On the Closing Date, subject to any exclusions provided for in Section 1.3, AMP and Whitaker shall transfer to DAH all of the assets, properties, rights (contractual or otherwise) used in the activities of, by or in connection with Qualitronix, wherever located, in each case whether in the nature of real, personal, or mixed property and whether tangible or intangible and known or unknown, whether or not set forth with particularity in this Agreement (collectively, the "Assets"). Without limiting the generality of the foregoing, the assets of Qualitronix to be transferred include: 1.1.1 REAL PROPERTY. Any and all real property (the "Real Property") which shall relate solely to Qualitronix, including that listed on Schedule 1.1.1; 1.1.2 REAL PROPERTY LEASES. Any and all rights under leases of real property and improvements (the "Real Property Leases"), relating to the Irvine Facility and any others, all as listed on Schedule 1.1.2; 1.1.3 PERSONAL PROPERTY. (a) All machinery and equipment (the "Machinery and Equipment"), including that listed on Schedule 1.1.3(a); (b) All tooling (the "Tooling"), including that listed on Schedule 1.1.3(b); (c) All furnishings, fixtures, computers and related equipment and furniture ("Furnishings & Fixtures"), including that listed on Schedule 1.1.3 (c); (d) All rights under leases of equipment or other tangible personal property ("Personal Property Leases"), including that listed on Schedule 1.1.3(d); 1.1.4 INVENTORY AND BACKLOG. (a) All raw materials, supplies, component parts, work-in-process and finished goods inventory, and other inventory (collectively the "Inventory"), including that listed on Schedule 1.1.4(a); (b) All backlogs of unfilled orders as of the date of this Agreement (the "Backlog") as listed on Schedule 1.1.4(b) (the "Opening Backlog Schedule"), which schedule shall set forth in detail; dates of orders, quantity, price, customer information, shipping dates and such other information as shall be deemed relevant to a determination of the scope, extent and accuracy of the Backlog. Schedule 1.1.4(b) shall also set forth the Backlog which AMP projects will exist at the Closing (the "Projected Backlog"). Page 2 1.1.5 RESERVED. 1.1.6 PERMITS. All material licenses, permits, consents, authorizations, approvals, certificates and franchises of any regulatory, administrative or other agency or body, issued to or held by AMP with respect to the Assets or the activities of Qualitronix (collectively, the "Permits"), as listed in Schedule 1.1.6; 1.1.7 PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY (a) All rights in patents, patent applications, inventions, invention disclosures copyrights, mask sets, computer programs, trade secrets, know-how, techniques, designs and other forms of intellectual property identified in Schedule 1.1.7(a); (b) All trademarks, names, service marks, trade names, marks, symbols and logos owned by AMP or Whitaker and used in connection with Qualitronix which are not otherwise used in any other business or activity of AMP. Without regard to any other use, the name "Qualitronix" or any derivative thereof, shall be transferred without restriction, all as shown in Schedule 1.1.7(b); (The interests set forth in Sections 1.1.7(a) and 1.1.7(b) shall collectively be referred to as the "Proprietary Rights") 1.1.8 CONTRACTS. (a) All rights under Material Contracts, (as defined and described in Section 3.2.22) not otherwise described in this Section 1.1, to the extent assignable, as listed on Schedule 1.1.8(a); (b) A separate list of those contracts which are Material Contracts, but which are not assignable shall be set forth as Schedule 1.1.8(b). 1.1.9 RESERVED. 1.1.10 RESERVED. 1.1.11 DEPOSITS AND PREPAID EXPENSES. All of the deposits and prepaid expenses, other than tax refunds, of AMP as relates to the Assets (respectively, the "Deposits" and the "Prepaid Expenses") as set forth in Schedule 1.1.11. 1.1.12 RESERVED. 1.1.13 RESERVED. 1.1.14 CUSTOMER LISTS. A complete listing of all customers and distributors, setting forth the names and addresses, all as set forth on Schedule 1.1.14. 1.1.15 BOOKS AND RECORDS. All books of account, files, papers and records maintained by AMP with respect to Qualitronix; 1.1.16 TELEPHONE NUMBERS. All telephone, fax, e-mail and other numbers used by Qualitronix, including those numbers listed on Schedule 1.1.16; Page 3 1.2 NON-ASSIGNMENT OF ASSETS. To the extent that any asset described in Section 1.1 may not be assigned to DAH, or may only be assigned to DAH with the consent of a third party (collectively "Non-assignable Assets"), then NOTWITHSTANDING anything to the contrary in this Agreement, neither this Agreement nor any action taken shall constitute an assignment or an agreement to assign; PROVIDED, HOWEVER, that in such case the parties shall act in accordance with the provisions of Section 1.4 below. A complete list of such Non-assignable Assets shall, be set forth in Schedule 1.2. 1.3 EXCLUDED ASSETS. 1.3.1 Notwithstanding Section 1.1, the assets (if any) listed on Schedules 1.3 and 1.1.8(b) shall be excluded from the "Assets" for all purposes. 1.3.2 Such exclusions shall include that portion of the management information systems utilized by AMP in connection with the activities of Qualitronix, which reside on the management information systems of AMP (the "AMP System") and which cannot be segregated without impairing the integrity of the data or systems of AMP or disclosing to DAH confidential or proprietary information of AMP which is not applicable to Qualitronix or the Assets. However, any data which is currently recorded or stored on the AMP System, applicable to the activities of Qualitronix and which is capable of being segregated, shall be included in the Books and Records set forth in Schedule 1.1.15. 1.3.3 Such exclusions shall include the "routers" used in connection with the local area network server. 1.3.4 Such exclusions shall include the plating lines located at the facility in Ontario, California. 1.4 THIRD PARTY CONSENTS 1.4.1 AMP shall use all reasonable efforts to obtain the consents to the assignment of the Material Contracts and Permits, which consents shall be referred to as the "Material Consents". AMP shall not agree to make any unreasonable financial accommodations to obtain such Material Consents. 1.4.2 In the event that any Permit which is to be assigned to DAH is not assignable, and DAH needs such permit in order to operate the business of Qualitronix, AMP and DAH shall use their best efforts and make every good further attempt to obtain such Permit. 1.4.3 Promptly following the execution and delivery of this Agreement, DAH and AMP shall cooperate with each other in obtaining consents to the sale of the Assets, and the consummation of the other transactions contemplated by this Agreement. The forms of consent shall be mutually acceptable to AMP and DAH. 1.4.4 Notwithstanding any provision to the contrary contained herein, AMP shall not be obligated to assign to DAH any contract, license, purchase order, sales order, lease, claim or right or any benefit therefrom, or other instrument which provides that it may not be assigned without the consent of the other party thereto and for which such consent is not obtained, other than Material Consents, or which is subject to a preferential right held by the other party, but in any such event, AMP shall cooperate with DAH in all reasonable respects for a period of one (1) year from the Closing Date in any reasonable arrangement designed to provide the benefits thereof to DAH. Page 4 2. PAYMENT OF PURCHASE PRICE ASSUMPTION OF CERTAIN LIABILITIES: CLOSING. 2.1 THE PURCHASE PRICE In consideration for the transfer and assignment by AMP of the Assets, the entry into the Supply Contracts and in consideration of the representations, warranties and covenants of AMP and Whitaker herein, DAH agrees to pay at the Closing: 2.1.1 An amount equal to the lesser of (i) Six million five hundred thousand dollars ($6,500,000) or (ii) the sum of: (a) The net book value of the tangible fixed assets as currently used to build the Contact Products located at the Irvine Facility or at any other location, such as at the facility of a Distributor, and as necessary and currently utilized to operate said facility, including the leasehold improvements as of September 30, 1996, all as set forth in Schedule 2.1.1(a) (the "Tangible Fixed Assets") multiplied by a factor of 1.5 (the "Tangible Asset Purchase Price") and (b) The value of the Inventory as determined in accordance with the provisions of Section 2.5 as of October 31, 1996, (the "Initial Inventory Value"), but excluding the value of any excess (meaning any inventory exceeding the usage in the past 12 months) or obsolete inventory (meaning any inventory with zero usage in the past 12 months) (collectively "Excess and Obsolete Inventory") as of the Inventory Date, multiplied by a factor of 1.5 (the "Initial Inventory Purchase Price") For the purposes of the determination of Excess and Obsolete Inventory, AMP shall set forth on Schedule 2.1.1(b) the quantity, total value, and Excess and Obsolete value by part number and the activity by part number. The activity for such calculations will be as defined in AMP Inventory Valuation Policy 09.04.02, revised 04/94. Upon receipt and review by DAH of the calculations used by AMP to determine the Excess and Obsolete Inventory, DAH will determine whether an adjustment can be made, taking into consideration DAH's then existing requirements for inventory classified as excess or obsolete. To the extent that DAH determines that its usage history indicates that it can use any portion of the Excess and Obsolete Inventory, DAH shall notify AMP that it may exclude such portion from the Excess and Obsolete Inventory calculation. Upon inquiry by AMP, DAH shall provide to AMP its data supporting its determinations pursuant to this paragraph. (c) less any obligations for accrual items or other prorations as provided for in Sections 2.6.2 and 3.2.2, which shall be subtracted from the Purchase Price if not previously discharged by AMP. If any such item is or would be included in the Inventory or Tangible Fixed Assets as to which the Tangible Asset Purchase Price or Inventory Purchase Price has been determined, then such reduction shall be multiplied by a factor of 1.5. 2.1.2 RESERVED. 2.1.3 There shall be withheld from the Purchase Price payable at the Closing an amount equal to ten percent (10%) of the Initial Inventory Value (the "Holdback Amount"), subject to the provisions of Section 2.5.2. 2.1.4 The Purchase Price shall be decreased by an amount equal to three percent (3%) of the total value of contact inventory held by Distributors on November 15, 1996. 2.2 THE CLOSING The closing of the purchase and sale of the Assets by AMP and Whitaker to DAH (the "Closing") shall take place at 11:00 AM, local time on December 13, 1996, but not later than December 27, 1997, or such other time and/or place as the parties hereto shall agree upon in writing (the "Closing Date"). The time set forth for Closing shall be extended as set forth in Section 5.2.9. The parties Page 5 need not be physically present in the same location in order to accomplish the Closing. The exchange of signed documents by facsimile transmission shall be deemed to be the exchange of the original signed documents, provided that the actual original documents are exchanged by appropriate means within three business days following the Closing. 2.3 RESERVED 2.4 RESERVED 2.5 INVENTORIES AND POST CLOSING ADJUSTMENT 2.5.1 For the purpose of determining the amount to be paid pursuant to Section 2.1.1(b) hereof (the "Initial Inventory Purchase Price), the value of the inventory (the "Initial Inventory Value") shall be determined from the Inventory schedule to be provided by AMP based upon its books and records maintained for Qualitronix as of October 31, 1996 (the "Initial Inventory Date") utilizing costs at the lower of "standard cost" or market value. 2.5.2 Within three (3) days following the Closing (the "Final Inventory Date"), the parties shall make a joint physical count and determination of the value of the Inventories for the purpose of determining the actual amount payable with respect to the Inventory pursuant to Section 2.1 (the "Final Inventory Value"). The Final Inventory Purchase Price shall be the amount determined by multiplying the Final Inventory Value by a factor of 1.5. In the event the Final Inventory Purchase Price shall be greater than the Initial Inventory Purchase Price, DAH shall within 10 days from such determination pay to AMP such differential and the Holdback Amount. In no event shall the amount so paid result in a total Purchase Price exceeding $6,500,000. 2.5.3 In the event that the Final Inventory Purchase Price shall be less than the Initial Inventory Purchase Price, but such differential is less the Holdback Amount, then DAH shall, within 10 days from such determination pay to AMP such portion of the Holdback Amount remaining. 2.5.4 In the event that the Final Inventory Purchase Price shall be less than the Initial Inventory Purchase Price by an amount exceeding the Holdback Amount, then AMP shall, within ten days from such determination pay to DAH such differential. 2.5.5 In the event of a dispute between the parties pertaining to any aspect of the determination of the Final Inventory Value or Final Inventory Purchase Price, such dispute shall be resolved by submission to and determination by a mutually agreed upon "Big Six" or "National" accounting firm with the costs of such determination borne equally by the parties. 2.6 ASSUMPTION OF CERTAIN LIABILITIES: NO ASSUMPTION OF OTHER LIABILITIES On the Closing Date, DAH will assume 2.6.1 RESERVED. 2.6.2 ACCRUED EMPLOYEE EXPENSES. All accrued employee expenses in the ordinary course which are (i) reflected as a liability as set forth on the books and records of Qualitronix and shown on Schedule 2.6.2, (the "October 31, 1996 Schedule of Liabilities") or (ii) if incurred after October 31, 1996, are (x) completely and accurately reflected in all material respects on the schedules required by Section 3.2.21 and to be delivered to DAH on the Closing Date and (y) are of the kind expressly permitted by the affirmative covenants, and not prohibited by the negative covenants, set forth in Section 4 hereof. Page 6 2.6.3 REAL PROPERTY LEASES: PERSONAL PROPERTY LEASES. The obligations of Qualitronix or AMP arising under the Real Property Leases listed on Schedule 1.1.2 and the Personal Property Leases listed on Schedule 1.1.3(c). 2.6.4 DISTRIBUTOR RETURNS OBLIGATIONS The obligation to accept any return of Contact Products from any Distributor, pursuant to any return provisions, including contractual Distributor inventory adjustments with respect to Distributor inventory of Contact Products as of the Closing Date, except for returns made for a period of three (3) months from the Closing Date pursuant to termination provisions in such Distributor Agreements, as to which AMP shall reimburse DAH an amount equal to the credit required to be given to the Distributor pursuant to the termination provisions of such Distributor Agreement. In the event that DAH shall notify AMP within such three month period that it has received any form of indication from a Distributor that it intends to terminate its Distributor Agreement, such three month period shall be extended for an additional three (3) months, provided that DAH demonstrates it is making a good faith effort to continue the trial period with the Distributor. 2.6.5 RESERVED 2.6.6 ROYALTIES AND LICENSE FEES. The royalties and license fees owing by Qualitronix, but ONLY TO the extent specified in Schedule 2.6.6. 2.6.7 CONTRACT OBLIGATIONS: Liabilities and obligations under any unfilled purchase order, sales order, lease, agreement or commitment of any kind by which AMP is bound on the Closing Date and which are assigned to DAH pursuant to this Agreement, and which were entered into in the ordinary course or are set forth in Schedule 1.1.8; 2.6.8 PERMIT OBLIGATIONS: Liabilities and obligations under permits, registrations,licenses, governmental approvals, orders and directives which are assigned to DAH pursuant to this Agreement and which were obtained or entered into in the ordinary course or are set forth on Schedule 1.1.6; 2.6.9 PRODUCT LIABILITIES Product liabilities of every kind and nature, relating to products constituting finished goods inventory of Qualitronix as of the Closing Date. 2.7 LIABILITIES NOT ASSUMED. 2.7.1 With the exception of the liabilities assumed pursuant to Section 2.6, DAH shall not by the execution or performance of this Agreement, or otherwise, assume or otherwise be responsible for any liability or other obligation of Qualitronix or AMP of any kind, nature or description, whether such liability or obligation is mature or not, liquidated or unliquidated, fixed or contingent, known or unknown, whether arising out of occurrences prior to, at or after the date of this Agreement, including those rising from breach of contract, breach of any warranty, except as specifically set forth, infringement, fraud, violation of any law, rule or regulation, or out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim or other demand. 2.7.2 AMP shall be solely responsible for warranty claims made with respect to Contact Products shipped on or prior to the Closing Date and DAH shall be solely responsible for warranty claims made with respect to Contact Products shipped by Qualitronix subsequent to the Closing Date 2.7.3. Without limiting the foregoing, DAH shall not assume any other obligations of Qualitronix or AMP except to the extent set forth in Schedule 2.7.3 and reflected as a reduction to the Purchase Price. Page 7 3. REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES BY DAH. DAH hereby represents and warrants to AMP that, except as set forth on Schedule 3.1, the representations and warranties of DAH contained in this Agreement, including those contained in this Section 3.1, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. DAH hereby represents and warrants to AMP the following: 3.1.1 ORGANIZATION. DAH is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and has all requisite corporate power and authority to own, lease and operate its properties and conduct its businesses as now being conducted. DAH is duly qualified, or will be duly qualified prior to the Closing Date, to do business and is in good standing in each jurisdiction in which the nature of its business or of its properties makes such qualification necessary 3.1.2 RESERVED. 3.1.3 AUTHORIZATION. DAH has all requisite corporate power and authority to enter into this Agreement and the Supply Contracts, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. All necessary corporate action has been taken by DAH with respect to the execution and delivery of this Agreement, and the Supply Contracts, and this Agreement and the Supply Contracts constitute valid and binding obligations of DAH, enforceable against DAH, in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.1.4 LITIGATION. There is no claim, litigation, action, suit, proceeding, investigation or inquiry, administrative or judicial, pending or, to the knowledge of DAH, threatened against DAH, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, which might have an adverse effect on their ability to perform any of their obligations under this agreement or upon the consummation of the transactions contemplated by this Agreement. 3.1.5 BROKERS. FINDERS. Except as disclosed in Schedule 3.1.5, the transactions contemplated herein were not submitted to DAH by any broker or other person entitled to a commission or finder's fee thereon, and were not with the consent of DAH submitted to DAH by any such broker or other person. Neither DAH nor any of its officers, directors or employees has engaged any broker or finder or incurred or taken any action which may give rise to any liability against itself or the Assets for any brokerage fees, commissions, finders fees or similar fees or expenses and no broker or finder has acted directly or indirectly for DAH in connection with this Agreement or the transactions contemplated hereby. No investment banking, financial advisory or similar fees have been incurred or are or will be payable by DAH in connection with this Agreement or the transactions contemplated hereby. DAH shall be solely responsible for the fees so incurred. 3.1.6 NO CONFLICT OR DEFAULT Except as pertains to the requirement of DAH to obtain the approval of its senior and subordinated lender as set forth in Section 5.2.9, neither the execution and delivery of this Agreement, nor compliance with the terms and provisions hereof, including the consummation of the transactions contemplated hereby and thereby, will (a) violate in any material respect any statute, regulation or ordinance of any governmental authority, or (b) conflict with or result in the breach of any term, condition or provision of the articles of incorporation or bylaws of DAH or of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument to which DAH is a Page 8 party or by which DAH maybe bound, or (c) constitute a material default (or an event which with the lapse of time or the giving of notice, or both, would constitute a material default) thereunder. 3.2 REPRESENTATION AND WARRANTIES BY AMP. AMP hereby represents and warrants to DAH that, except as set forth on Schedule 3.2, the representations and warranties of AMP contained in this Agreement, including those contained in this Section 3.2, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. As used in this Section 3.2,(i)unless stated to the contrary, all representations and warranties which are made to the "Knowledge of AMP" or similar terms, relate only to Qualitronix, its activities, assets and liabilities; (ii) except with respect to Environmental Matters as set forth in Section 3.2.16, all representations and warranties relate only to the period from the time that AMP acquired Qualitronix to the date of this Agreement when Qualitronix, its activities, assets and liabilities were owned by AMP and (iii) when reference is made to Qualitronix as if it were a legal entity, the representation is meant to be with respect to the activities of AMP, as to which the term "Qualitronix" has been applied merely for convenience, as if Qualitronix were a separate legal entity, although the parties specifically agree and understand that Qualitronix is not such a separate legal entity, nor is it a specific defined line of business on a stand alone basis. AMP hereby represents and warrants to DAH the following: 3.2.1 CORPORATE ORGANIZATION. (a) AMP is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has all requisite corporate power and authority to own, lease and operate its properties and conduct its business as now being conducted. AMP is duly qualified to do business and in good standing in each jurisdiction wherein the activities of Qualitronix would require such qualification as listed on Schedule 3.2.1. Except as set forth on Schedule 3.2.1, AMP has not received any written notice or assertion within the last three years from any governmental official of any jurisdiction to the effect that AMP, solely as it pertains to the activities conducted as Qualitronix, is required to be qualified or otherwise authorized to do business therein, in which AMP has not qualified or obtained such authorization. (b) Whitaker is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its properties and conduct its business as now being conducted. Whitaker is duly qualified to do business and in good standing in each jurisdiction wherein the activities of Whitaker would require such qualification as listed on Schedule 3.2.1. Except as set forth on Schedule 3.2.1, Whitaker has not received any written notice or assertion within the last three years from any governmental official of any jurisdiction to the effect that Whitaker is required to be qualified or otherwise authorized to do business therein, in which Whitaker has not qualified or obtained such authorization. 3.22 RESERVED. 3.23 AUTHORIZATION OF AMP . AMP or Whitaker, as the case may be, has full corporate power and authority to enter into this Agreement, and the Supply Contracts to which it is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. All necessary and appropriate corporate action has been taken by AMP and Whitaker, as the case may be, with respect to the execution and delivery of this Agreement, and the Supply Contracts to which it, is a party. This Agreement constitutes, and the Supply Contracts to which AMP is a party, when executed, and delivered by AMP will constitute, valid and binding obligations of AMP or Whitaker, as the case may be, enforceable against AMP or Whitaker in accordance with their respective terms, subject to applicable Page 9 bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.2.4 HISTORIC PERFORMANCE. Schedule 3.2.4 sets forth in full detail the historic volume of Contact Products produced by Qualitronix and/or consumed by AMP in the Cylindrical and Non-Cylindrical product, for the, nine months ended September 30, 1996, including all sales direct to customers of AMP and delivery of Contact Products manufactures by Qualitronix to AMP for resale or inclusion as a component in or portion of a higher tier product or assembly, except that direct sales volume on all Cylindrical Product shall also include 1995. Such schedule shall specify the part number, quantity delivered by part number, sales price, customer name for all Cylindrical Products and the part numbers, quantity and purchase price for all Non-Cylindrical Products and Inventory totals only for 1995 and the first nine months of 1996 shall be provided. Such Inventory schedule shall also show the Activity determined in the manner set forth in Section 2.1.1(b). 3.2.5 RESERVED. 3.2.6 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set forth on Schedule 3.2.6, since October 31, 1996, there has not been: (a) Any material adverse change in the operations (as now conducted or as presently proposed to be conducted), assets, properties or rights, condition (financial or otherwise) or to the best knowledge of AMP prospects, including, but not limited to any indication by any customer or distributor of a material reduction in anticipated volumes of Contact Products to be acquired, of AMP as it pertains to the activities of Qualitronix or, any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change (a "Material Adverse Effect"); (b) Any material increase in amounts payable by AMP for the benefit of, or committed to be paid by Qualitronix to or for the benefit of any person listed on Schedule 3.2.6(b) (each a "Key Employee") or in any benefits granted under any bonus, stock option, profit sharing, pension, retirement, deferred compensation, insurance, or other direct or indirect benefit plan, payment or arrangement made to, for the benefit of any Key Employee; (c) Any material transaction entered into or carried out by AMP with respect to the activities of Qualitronix other than in the ordinary and usual course; (d) Any borrowing or agreement to borrow funds; any incurring of any other obligation or liability, contingent or otherwise except current liabilities incurred in the usual and ordinary course of business not exceeding at any one time outstanding $10,000; or any endorsement, assumption or guarantee of payment or performance of any loan or obligation of any other individual, firm, corporation or other entity by AMP with respect to Qualitronix; (e) Any material change made by AMP in the methods of doing business with respect to Qualitronix; (f) Any mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance imposed or agreed to be imposed on or with respect to the Assets; (g) Any current liabilities incurred or obligations under contracts entered into after such date other than in the usual and ordinary course of business; Page 10 (h) Any sale, lease or other disposition of or any agreement to sell, lease or otherwise dispose of any material portion of the Assets, other than sales of finished goods in the usual and ordinary course at the regularly scheduled prices;. (i) Any purchase of or any agreement to purchase capital assets for an amount in excess of $5,000 for any one such purchase or $20,000 for all such purchases made by AMP with respect to Qualitronix or any lease or any agreement to lease, as lessee, any capital assets with payments over the term thereof to be made by AMP with respect to Qualitronix exceeding an aggregate of $10,000; (j) Reserved; (k) Any modification, waiver, change, amendment, release, rescission or termination of, or accord and satisfaction with respect to, any material term, condition or provision of any material contract, agreement, license or other instrument to which AMP is a party as pertains to the Assets, other than any satisfaction by performance in accordance with the terms thereof in the usual and ordinary course of business; (l) Any labor disputes or disturbances materially adversely affecting the business or financial prospects of AMP as it pertains to the activities of Qualitronix including the filing of any petition or charge of unfair labor practices with the National Labor Relations Board or efforts to effect a union representation election, actual or threatened employee strikes, work stoppages or slow downs; (m) Any delay or postponement (beyond normal practice) by AMP with respect to Qualitronix of the payment of any accounts payable or other liabilities of Qualitronix; (n) To the best of the knowledge of AMP, any other event or condition of any character which has had a Material Adverse Effect or may reasonably be expected to result in a Material Adverse Effect; or (o) To the best of the knowledge of AMP, there have been no adverse events pertaining to environmental matters. 3.2.7 UNDISCLOSED LIABILITIES. To the best knowledge of AMP, except as disclosed on Schedule 3.2.7, AMP has no liability or obligation of any nature (whether liquidated, unliquidated, accrued, absolute, contingent or otherwise and whether due or to become due) with respect to the Assets, except those arising under agreements or other commitments expressly identified in any Schedule hereto; and 3.2.8 TAXES. Except as set forth on Schedule 3.2.8, AMP has filed all applicable Federal, State and local tax returns relating to the Assets and with respect to the activities of Qualitronix. 3.2.9 COMPLIANCE WITH LAW. (a) Subject to the provisions of Section 3.2.16, AMP is in compliance in all material respects (with respect to the activities of Qualitronix) with all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered, by any federal, state, local or foreign court or governmental authority or instrumentality with respect to the activities of Qualitronix or relating to any of the Assets. (b) [Reserved] Page 11 (c) Schedule 1.1.6 contains a complete and accurate list of the "Permits". Each of the Permits is currently valid and in full force and effect. The Permits constitute all franchises, licenses, permits, consents, authorization, approvals, and certificates of any regulatory, administrative or other agency or body necessary for the conduct of the activities of Qualitronix. AMP is not in material violation of any of the Permits and there is not now pending nor, to the best knowledge of AMP, any threatened proceeding which could result in the revocation, cancellation or inability of AMP to renew or transfer any Permit with respect to the activities of Qualitronix. (d) To the best knowledge of AMP, except as set forth in Schedule 3.2.9, AMP is not under investigation (with respect to the activities of Qualitronix) with respect to, or has been charged with or given notice of any violation of, any applicable law with respect to the activities of Qualitronix or any of the Assets. 3.2.10 PROPRIETARY RIGHTS. (a) AMP or Whitaker owns, free from encumbrances, the patents and trademarks issued by the United States Patent and Trademark Office and applications therefor, as well as any other Proprietary Rights set forth in Schedules 1.1.7(a) and 1.1.7(b). No proceeding has been filed, of which AMP or Whitaker has been notified, or to the best knowledge of AMP or Whitaker is threatened to be filed, charging AMP or Whitaker, with respect to the activities of Qualitronix as the same is currently conducted, with infringement of any patent, trademark, copyright, copyright registration or any other type of intellectual property right or other proprietary rights of a third party. (b) Schedules 1.1.7(a) and 1.1.17(b) set forth all of the Proprietary Rights in respect thereof. Other than those Proprietary Rights listed on Schedules 1.1.7(a) and 1.1.7(b), to the best of the knowledge of AMP or Whitaker, no other Proprietary Rights are necessary for the operation of the activities of Qualitronix as the same is currently conducted and all such Proprietary Rights have been reduced to writing. If Proprietary Rights other than as listed are required for the operation of the activities of Qualitronix as the same is currently conducted, AMP or Whitaker shall grant to DAH, a royalty free license to the worldwide use of all such Proprietary Rights currently used by Qualitronix and necessary to carry on the operation of the activities of Qualitronix as the same is currently conducted. Such license may not be sublicensed by DAH, except on an intra-company basis nor may it be transferred except pursuant to a merger, consolidation or transfer of substantially all of the Assets of Qualitronix. 3.2.11 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the matters listed on Schedule 3.2.11, AMP (with respect solely to the activities of Qualitronix) is not a party to or bound under any and, to the best knowledge of AMP, there is no pending, proposed or threatened regulation, certificate, mortgage, lien, lease, agreement, contract, instrument, law, vote, order, judgment or decree, or any similar restriction not of general application which materially adversely affects, or reasonably could be expected to materially adversely affect (i) the condition, financial or otherwise, of the Assets or properties which are the subject of this Agreement; (ii) the continued operation by DAH of the activities of Qualitronix after the Closing Date on substantially the same basis as said activities were theretofore operated; or (iii) the consummation of the transactions contemplated in this Agreement. 3.2.12 INSURANCE. To the best of the knowledge of AMP, the activities of Qualitronix and the Assets to be transferred herein are insured with respect to such property and the conduct of such activities in such amounts and against such risks as are sufficient for compliance with law, and for compliance with the terms of each of its contractual commitments (including under each of the Real Property Leases, Personal Property Leases and Contracts). Schedule 3.2.12 is a true, correct and complete list of all insurance policies and bonds Page 12 in force in which AMP or Qualitronix is named as an insured party, in respect of the activities of Qualitronix, or for which Qualitronix has been charged or has paid any premiums. Except as disclosed in Schedule 3.2.12, all such policies or bonds are currently in full force and effect. Neither AMP nor Qualitronix has received any notice from any such insurer with respect to the cancellation of any such insurance. AMP will continue all of such insurance in full force and effect up to and including the Closing Date. All premiums due and payable on such policies have been paid. 3.2.13 RESERVED 3.2.14 REAL PROPERTY. Except as set forth in Schedule 1.1.1, and except with respect to real property leased pursuant to the Real Property Leases listed on Schedule 1.1.2, Qualitronix has no real property. The real property leased pursuant to the Real Property Leases constitutes all of the real property now used in and necessary for the conduct of the activities of Qualitronix as presently conducted. All such Real Property Leases are held free and clear of all, pledges, liens, security interests, encumbrances and restrictions of any nature whatsoever, except as listed on Schedule 3.2.14. Schedules 1.1.1 and 1.1.2 set forth a complete and accurate legal description of each parcel of real property owned by AMP and used in connection with activities of Qualitronix. Except as set forth in Schedule 3.2.14, all real property, buildings and structures owned or used by AMP in connection with the activities of Qualitronix and material to such activities is suitable for the purpose or purposes for which it is being used, and to the best of the knowledge of AMP is in such condition and repair as to permit the continued operation of said activities. To the best of the knowledge of AMP, and except as set forth in Schedule 3.2.14, none of such real property, buildings or structures is in need of maintenance or repairs except for ordinary; routine maintenance and repairs. To the best of AMP's knowledge, and except as set forth in Schedule 3.2.14, there are no material structural defects in the exterior walls or the interior bearing walls, the foundation or the roof of any plant, building, garage or other such structure owned, leased or used by AMP, and except as set forth in Schedule 3.2.14, in connection with the activities of Qualitronix and the electrical, plumbing and heating systems, and the air conditioning system, if any, of any such plant, building, garage or structure are in reasonable operating condition in light of their age and prior use. To the best of the knowledge of AMP, and except as set forth in Schedule 3.2.14, the utilities servicing the real property owned, leased or used in connection therewith are adequate to permit the continued activities of Qualitronix and there are no pending or threatened zoning, condemnation or eminent domain proceedings, building, utility or other moratoria, or injunctions or court orders which would materially effect such continued operation. Schedule 3.2.14 lists, and AMP has furnished or made available to DAH copies of, all engineering, geologic and environmental reports prepared by or for either AMP or Qualitronix with respect to the Real Property and the real property leased pursuant to the Real Property Leases. 3.2.15 PERSONAL PROPERTY. The schedules provided for under Section 1.1.3 contain complete and accurate descriptions of the Personal Property. Except as set forth in Schedule 3.2.15, and except with respect to personal property leased pursuant to the material Personal Property Leases, AMP has good, valid and marketable title to all of the Personal Property. Schedule 3.2.22 contains a complete and accurate description of all Personal Property Leases to which AMP is a party and which are used in connection with the activities of Qualitronix. Such portion of the Assets which is personal property constitutes all of the personal property now used in or necessary for the conduct of the activities of Qualitronix as presently conducted, wherever located, and is held free and clear of all mortgages, pledges, liens, security interests, encumbrances and restrictions of any nature whatsoever, except as listed on Schedule 3.2.15. Page 13 To the best knowledge of AMP, none of the Machinery or Equipment or Tooling is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. 3.2.16 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.2.16 and described in the reports listed on Schedule 3.2.14, to AMP's knowledge the operations of Qualitronix is in compliance in all material respects with all occupational health and safety acts and all environmental laws and regulations of all federal, state and local governmental or regulatory bodies having jurisdiction over AMP with respect to the activities of Qualitronix. Without limiting the generality of the foregoing, and by way of example only, except as set forth on Schedule 3.2.16, all as to AMP's knowledge: (a) There has not been, and is not now occurring, any Release of any Hazardous Substance on any real property owned, operated, leased or used by AMP in connection with the activities of Qualitronix. For purposes of this Agreement, the terms "Release" and "Hazardous Substance" shall have the same meanings as those terms are given in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except that for purposes of this Agreement petroleum (including crude oil or any fraction thereof) shall be deemed a Hazardous Substance. (b) With respect to the activities of Qualitronix, AMP has never sent a Hazardous Substance to a site which, pursuant to CERCLA or any similar state law, (A) has been placed, or is proposed to be placed, or, to the best knowledge of AMP, may in the future be placed, on the "National Priorities List" of hazardous waste sites or on any similar list of any federal, state or local governmental agency, including the Comprehensive Environmental Response, Compensation and Liability System list for potential hazardous waste sites, or (B) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (as defined under CERCLA) or to pay for any costs relating to such site. (c) With respect to the activities of Qualitronix, AMP has never been nor is currently in violation of any provision of the Toxic Substances Control Act or the regulations promulgated thereunder. (d) With respect to the activities of Qualitronix, AMP is not involved in any suit or has received notice of any claim relating to personal injuries from exposure to Hazardous Substances. 3.2.17 BROKERS. FINDERS. The transactions contemplated herein were not submitted to AMP by any broker or other person entitled to a commission or finder's fee thereon, and were not with the consent of AMP submitted to DAH by any such broker or other person. Neither AMP nor any of its officers, directors or employees has engaged any broker or finder or incurred or taken any action which may give rise to any liability against itself or the Assets for any brokerage fees, commissions, finders fees or similar fees or expenses and no broker or finder has acted directly or indirectly for AMP in connection with this Agreement or the transactions contemplated hereby. No investment banking, financial advisory or similar fees have been incurred or are or will be payable by AMP in connection with this Agreement or the transactions contemplated hereby. 3.2.18 LEGAL PROCEEDINGS. ETC. Except as set forth on Schedule 3.2.18, there is no claim, litigation, action, suit or proceeding, administrative or judicial, filed, pending or to the best knowledge of AMP, threatened against AMP, (with respect solely to the activities of Qualitronix), or involving the Assets, this Agreement or the transactions contemplated hereby, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, including any unfair labor practice or grievance, Page 14 proceedings or claim which could have a Material Adverse Effect upon Qualitronix Except as disclosed in Schedules 1.1.6 and 3.2.18, AMP (with respect to the activities of Qualitronix) is not subject to any judgment, order or decree, or, to the best knowledge of AMP, any governmental restriction applicable to AMP (with respect to the activities of Qualitronix) which has a reasonable probability of having a Material Adverse Effect, or which materially adversely affects the ability of AMP to continue the activities of Qualitronix as currently being conducted, or of DAH to continue the activities of Qualitronix as presently conducted. 3.2.19 NO CONFLICT OR DEFAULT. Neither the execution and delivery of this Agreement, nor compliance with the terms and provisions hereof, including the consummation of the transactions contemplated hereby and thereby, will (a) violate in any material respect any statute, regulation or ordinance of any governmental authority, or (b) conflict with or result in the breach of any term, condition or provision of the articles of incorporation or bylaws of AMP or of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument (with respect to the activities of Qualitronix) to which AMP is a party or by which AMP or any part of the Assets is or may be bound, or (c) constitute a material default (or an event which with the lapse of time or the giving of notice, or both, would constitute a material default) thereunder, or (d) result in the creation or imposition of any lien, charge or encumbrance, or restriction of any nature whatsoever with respect to any part of the Assets, or (e) except as set forth on Schedule 3.2.19, give to others any interest or rights, including rights of termination, acceleration or cancellation in or with respect to any part of the Assets or the activities of Qualitronix 3.2.20 LABOR RELATIONS. Schedule 3.2.20 sets forth all collective bargaining or other labor agreements to which AMP is bound and which covers employees engaged in the activities of Qualitronix. There is no labor strike, dispute, slowdown or stoppage, or any union organizing campaign, or petition for certification actually pending or, to the best knowledge of AMP, threatened against or involving the activities related to Qualitronix. Schedule 3.2.20 sets forth all pending grievances and arbitration proceedings against AMP as relates to the activities of Qualitronix arising out of or under a collective bargaining or other labor agreement No collective bargaining or other labor agreement is currently being negotiated by AMP which would affect employees engaged in the activities of Qualitronix. AMP has not experienced any work stoppage or other material labor difficulty over the past three years with respect to the activities of Qualitronix. No agreement which is binding on AMP as pertains to the activities of Qualitronix restricts it from relocating or closing any or all of its operations. 3.2.21 EMPLOYEE BENEFIT PLANS. (a) To the best of the knowledge of AMP, except as set forth in Schedule 3.2.21, AMP does not currently sponsor, maintain or contribute to, and has not, within the past 3 years, sponsored, maintained or contributed to, any pension, retirement, profit-sharing, deferred compensation, bonus, stock option or other incentive plan, or any other employee benefit program, arrangement, agreement or understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such employee benefit plan is otherwise exempt from the provisions of ERISA, and whether or not formal or informal, written or oral, and whether or not legally binding all as pertains to the activities of Qualitronix. (All such plans, funds or programs sponsored, maintained or contributed to by AMP currently or within the past 3 years, whether or not listed on Schedule 3.2.21, are hereinafter referred to as the "Employee Benefit Plans"). For the purpose of this Section 3.2.21, the term "AMP" shall include all "entities" of AMP, whether or not incorporated, with which it would be treated as a single employer for purposes of Sections 414(b), (c) or (m) of the Internal Revenue Code (the "Code"); Page 15 (b) Qualitronix maintains, sponsors or contributes only to those employee pension benefit plans (as defined in Section 3(2) of ERISA, whether or not excluded from coverage under specific Titles or Subtitles of ERISA) for the benefit of employees or former employees of AMP which are described in Schedule 3.2.21, none of which is a multiemployer plan (within the meaning of Section 3(37) of ERISA); (c) Qualitronix maintains, sponsors or contributes only to those employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or not excluded from coverage under specific Titles or Subtitles of ERISA) for the benefit of employees or former employees of AMP which are described in Schedule 3.2.21, none of which is a multiemployer plan (within the meaning of Section 3(37) of ERISA); (d) Except as set forth on Schedule 3.2.21, each Employee Benefit Plan is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other federal or state law. On the Closing Date, AMP will have no liabilities on account of or in connection with any Employee Benefit Plan. AMP has adequately accrued for liabilities to meet current contributions or benefit payments which remain unfunded as of the Closing Date as set forth in Schedule 3.2.21 (d) and which accrued amount shall be reflected as a reduction in the Purchase Price as set forth in Section 2 to the extent that such unfunded amount is assumed by DAH at the Closing. 3.2.22 CONTRACTS AND COMMITMENTS. (a) The Schedules submitted in connection with Section 1.1 contain a list of all of the contracts or agreements of any kind and type to which AMP is a party with respect to the activities of Qualitronix and the Assets which involve the payment by or to AMP with respect to the activities of Qualitronix in the aggregate of $10,000 or more during any year (collectively the "Material Contracts"), and AMP shall deliver to DAH correct and complete copies of each such Material Contract. The Material Contracts so listed, taken together, constitute all of the contracts, real estate leases, personal property leases, agreements, contract rights, leases, license agreements, franchise rights and agreements, policies, purchase and sales orders, quotations and executory commitments, instruments, guaranties, indemnifications, arrangements, obligations and understandings (written or oral), involving the payment by or to AMP with respect to the activities of Qualitronix, in the aggregate of $10,000 or more during any year, necessary to the conduct of the activities of Qualitronix as conducted by AMP. (b) [Reserved] (c) All of the Material Contracts are valid and binding, in full force and effect and enforceable against AMP in accordance with their respective provisions. AMP has not assigned, mortgaged, pledged, encumbered, or otherwise hypothecated any of its right, title or interest under any Material Contract. To the best knowledge of AMP, AMP is not in violation of, in default in respect of, nor has there occurred an event or condition which, with the passage of time of giving of notice (or both) would constitute a violation or default of, any Material Contract; and, to the best knowledge of AMP, there are no facts or circumstances which would reasonably indicate that AMP (or any other party) will be or may be in violation of or in default in respect of any Material Contract, subsequent to the date hereof. No notice has been received by AMP claiming any such default or indicating the desire or intention of any other party thereto to amend, modify, rescind or terminate the same. Page 16 3.2.23 RESERVED. 3.2.24 INVENTORIES. Schedule 1.1.4(a) completely and accurately lists all of the Inventory owned by AMP with respect to the activities of Qualitronix, and the value thereof as of the date thereof. Except as set forth in Schedule 3.2.24, in all material respects all of the Inventory consists of a quality usable and saleable in the ordinary and usual course of business. All Inventory not written off has been priced at the lower of "standard cost" or market on a LIFO basis. The quantities of each type of Inventory (whether raw materials, work-in-process, or finished goods) are reasonable and warranted in the present circumstances of Qualitronix. To the best knowledge of AMP and based upon its compliance with quality specifications AMP Specifications: 102-55010 Rev. E; 102-55015 Rev.A and 102-55033 Rev. D, all work-in-process and finished goods Inventory is free of any defect or other deficiency. 3.2.25 BACKLOG. All unfilled orders to purchase goods of AMP as it relates to the activities of Qualitronix are set forth in Schedule 1.1.4(b) and are firm and binding commitments having delivery schedule commitments (subject to cancellation rights set forth therein) of the respective purchasers (assuming that such purchaser has properly authorized by all requisite corporate or, if not a corporation, by all other requisite action and has properly executed and delivered such purchase order, which, to the best knowledge of AMP is the case) to purchase the goods indicated at the prices specified. 3.2.26 PERSONNEL RECORDS. The Personnel Records submitted pursuant to Section 1.1.15 constitute the full and complete personnel records with respect to all Employees employed by AMP who will be employed by DAH subsequent to the Closing. Such Personnel Records were kept in accordance with all applicable laws and regulations and the personnel practices of AMP in the ordinary course. 3.2.27 MANAGERS, EMPLOYEES AND COMPENSATION. (a) Schedule 3.2.27 sets forth the name of all managers of AMP with respect to the activities of Qualitronix, their respective terms of office, the total salary, bonus payments, fringe benefits and perquisites each received in each of the last 3 fiscal years ended December 31, 1995, and changes to the foregoing which have occurred since December 31, 1995; such Schedule also lists and describes the current base salary, bonus payments, fringe benefits and perquisites of any other employee, agent or representative of AMP with respect to the activities of Qualitronix whose total current salary, bonus or other compensation exceeds $50,000 annually during any of the last 3 fiscal years ended December 31, 1995, and changes to the foregoing since December 31, 1995. There are no other material forms of compensation paid to any such manager or employee of AMP with respect to the activities of Qualitronix. The provisions for wages and salaries accrued and set forth on the October 31, 1996 Schedule of Liabilities are adequate for salaries and wages, including accrued vacation pay, for the period up through the date thereof, and such schedule sets forth all obligations for wages and salaries and other compensation to its employees, including, but not limited to, vacation pay and sick pay, and all commissions and other fees payable to agents, salesmen and representatives. AMP has filed any and all payroll tax returns, and paid all payroll taxes due for any and all employees engaged in the activities of Qualitronix, due through the Closing Date ("Payroll Expenses"). To the extent that there shall be any unpaid Payroll Expenses as of the Closing, such amount shall be a reduction in the purchase price as set forth in Section 2. (b) To the best knowledge of AMP, no Key Employee has a present intention to leave the employ of Qualitronix or has taken any action directed towards leaving the employ of Qualitronix. Page 17 3.2.28 CREDIT TERMS: PRODUCT WARRANTIES. Schedule 3.2.28 sets forth all the terms and conditions of credit and discounts given by AMP to its customers in the usual and ordinary course of its business with respect to the activities of Qualitronix and a list of all transactions pending where there is a material departure therefrom. Also set forth on such Schedule are the terms and conditions of the standard product or service warranties and guarantees given by AMP in the usual and ordinary course of its business with respect to the activities of Qualitronix and a list of all transactions pending as to which there is a material departure therefrom. Except as set forth on such Schedule, AMP has conducted all qualification inspections and quality conformance inspections required by the specifications for Contact Products of Qualitronix included on qualified products lists in accordance with the requirements of such specifications, and all Contact Products shipped have been in conformance with such specifications. 3.2.29 RESERVED. 3.2.30 GOVERNMENT CONTRACTS. (a) For purposes of this Section 3.2.30, the term "Government" means any agency, division, subdivision, audit group, or procuring office of the federal government, including the employees or agents thereof; the term "Transferor" means AMP solely with respect to the activities of Qualitronix; the term "Government Contract" means any prime contract, subcontract, basic ordering agreement, letter contract, purchase order or delivery order of any kind, including all amendments, modifications and options thereunder or relating thereto, between the Transferor and any of the Government, any prime contractor of the Government, any subcontractor of such a prime contractor or any subcontractor of another subcontractor, however far removed from the prime contractor such subcontractor may be, (A) currently in force; (B) which, within the three years preceding the date of this Agreement, expired or were terminated; or (C) for which final payment was received within the three years preceding the date of this Agreement; and the term "Bid" means any outstanding quotation, bid or proposal submitted by Transferor to the Government, any proposed prime contractor of the Government, or any proposed subcontractor. (b) Schedule 3.2.30 contains a true and complete list of all Bids which involve or can be expected to involve aggregate consideration in excess of $100,000. (c) Except as set forth in Schedule 3.2.30, with respect to any Government Contract or Bid, to the best of the knowledge of AMP, the Transferor has complied with and expects to comply with all material terms thereof, all certifications and representations of Transferor with respect thereto, and all statutes and regulations applicable thereto. (d) Except as set forth in Schedule 3.2.30, (A) no show cause notices, cure notices, or terminations have been issued against the Transferor with respect to any Government Contract; (B) no negative determinations of responsibility have been issued against the Transferor with respect to any Bid and (C) none of the Government, any prime contractor nor any subcontractor has notified the Transferor, either orally or in writing, that it is in breach or violation of any provision of any Government Contract, any certification or any QPL or representations with respect thereto or any statutes and regulations applicable thereto. (e) The Transferor possesses all necessary security clearances and permits for the execution of its obligations under any Government Contracts and Bids. To the best knowledge of AMP, none of the Key Employees and other employees currently employed by the Transferor have ever been denied a security clearance. Page 18 (f) The Transferor is not undergoing and has not undergone any audit, other than in the ordinary course of such business, the results of which Audit did not have a Material Adverse Effect, and has no knowledge or reason to know of any basis for impending audits in the future, arising under or relating to any Government Contract except as set forth in Schedule 3.2.30. (g) The Transferor has entered into no financing arrangements with respect to the performance of any current Government Contract except as set forth in Schedule 3.2.30. 3.2.31 SOLVENCY. The total assets of AMP exceeds its total liabilities; and AMP is able to perform its financial obligations as performance thereof becomes due. 3.2.32 ALLOCATIONS. Those costs which, during the period January 1, 1995 through September 30, 1996, have been allocated by AMP to the activities of Qualitronix, as set forth in Schedule 3.2.32, equal or exceed the true cost to AMP, and all such identifiable costs have been allocated to Qualitronix. Schedule 3.2.32 sets forth such allocations for 1995, and for the 9 months ended September 30,1996. 3.2.33 COMPLETE DISCLOSURE. To the best knowledge of AMP, no representation or warranty made by AMP in this Agreement, and no exhibit, schedule, statement, certificate or other writing furnished to DAH by or on behalf of AMP pursuant to this Agreement or in connection with the transactions contemplated hereby or thereby, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein not misleading. 3.2.34 REPETITIVE DISCLOSURE. To the extent that DAH, AMP or Whitaker have made any disclosure on any schedule to this Agreement, such disclosure shall be considered to be made for purposes of this Agreement notwithstanding that such disclosure is not made on all applicable schedules. 3.2.35 NO REPRESENTATION REGARDING FUTURE BUSINESS. Notwithstanding any other provision in this Agreement to the contrary, including any express or implied representation contained herein, AMP makes no representation regarding its present or future intent to continue in the business of manufacturing, distributing or selling cylindrical or non-cylindrical connectors. 3.3 RESERVED. 3.4 CLAIMS BASED ON REPRESENTATIONS AND WARRANTIES. The recourse by DAH against AMP or Whitaker or by AMP or Whitaker against DAH for any breach of the representations and warranties set forth in Sections 3.1 and 3.2 shall be limited to a two (2) year period from the Closing Date, except for matters as to which notification of a potential claim has been given prior to the expiration of the two (2) year period, in which instance the period in which to assert such claim shall be extended for six months. 3.5 DUE DILIGENCE. The due diligence conducted by DAH will not affect, qualify, or modify (i) any of the representations or warranties of AMP or (ii) any indemnification or similar obligations of AMP. 4. COVENANTS. 4.1 COVENANTS OF DAH. 4.1.1 PAYMENT AND PERFORMANCE OF ASSUMED LIABILITIES. From and after the Closing Date, DAH shall pay and perform the liabilities assumed pursuant to Section 2.1 in the ordinary course of its business in accordance with DAH's standard business practices. Page 19 4.1.2 RESERVED. 4.1.3 USE OF NAME. After the Closing Date, DAH shall not use the name "AMP" in connection with the activities of Qualitronix. 4.1.4 COVENANT AGAINST DISCLOSURE. Except to the extent provided by Section 4.2.8, DAH agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than AMP or those designated in writing by AMP) in any manner, directly or indirectly, any information or data relevant to the business of AMP (other than Qualitronix), whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than AMP or those designated in writing by AMP) to use, in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4.1.4. 4.1.5 RESERVED. 4.1.6 HOLD HARMLESS. For a period of two years from the Closing, DAH agrees to indemnify and hold harmless AMP (the "DAH Indemnification") from any claims, costs or liabilities, which exceeds $10,000 for each claim of DAH Indemnification arising from the breach of any of the warranties or representations of DAH herein (the "AMP Claims"). AMP Claims relating to matters of like or similar kind shall be aggregated and each shall not be considered a separate claim. In connection therewith, DAH shall undertake to defend AMP with respect to any such AMP Claims asserted at its sole cost and expense upon receipt of notice of such AMP Claims. 4.1.7 COVENANT AGAINST HIRING. DAH agrees that it shall not purposefully take any action which would induce any employee or representative of AMP not to continue as an employee or representative of AMP. Without limiting the generality of the foregoing, DAH shall not, either directly or indirectly through its Tri-Star subsidiary, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at the Closing Date an employee, partner, representative, or manager of the Aerospace and Government Systems Sector of AMP. 4.1.8 EMPLOYEES. Except as set forth on Schedule 4.1.8, which shall be delivered not later than three days preceding the Closing, from and after the Closing Date, DAH shall employ all of the current employees of AMP engaged in the activities of Qualitronix, subject to normal management prerogatives to adjust the work force, review performance and terminate employment as DAH shall deem necessary or appropriate. DAH shall compensate such employees at substantially the same level of compensation in effect for such employees immediately prior to the Closing Date. DAH will provide fringe benefits for such employees which are consistent with fringe benefits provided to employees of the TriStar subsidiary of DAH. 4.2 COVENANTS OF AMP. 4.2.1 CHANGE OF NAME: USE OF NAME. AMP or Whitaker shall grant any consents and take any other and further action, all at its own expense, requested by DAH to enable DAH to use, reserve or register the name "Qualitronix" and any other trademark or trade style or name presently used by Qualitronix, for the exclusive use of DAH. After the Closing Date, AMP shall discontinue use of the names "Qualitronix". Page 20 4.2.2 COVENANT AGAINST DISCLOSURE. Except to the extent provided in Section 4.2.8, AMP agrees not to (a) disclose to any person, association, firm, corporation or other entity (other than DAH or those designated in writing by DAH) in any manner, directly or indirectly, any information or data relevant to the activities of Qualitronix, or whether of a technical or commercial nature, or (b) by use, or permit or assist, by acquiescence or otherwise, any person, association, firm corporation or other entity (other than DAH or those designated in writing by DAH) to use, in any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public other than by any breach of any provision of this Section 4.2.2. 4.2.3 COVENANT AGAINST HIRING. AMP understands that it is essential to the successful operation of the activities of Qualitronix to be acquired hereunder that DAH retain substantially unimpaired Qualitronix's personnel. AMP agrees that it shall not purposefully take any action which would induce any employee or representative of AMP not to become or continue as an employee or representative of DAH. Without limiting the generality of the foregoing, AMP, solely as to its Aerospace and Government Systems Sector, shall not, for a three (3) year period from the Closing Date solicit to employ (whether as an employee, officer, director, agent, consultant or independent contractor), or enter into any partnership, joint venture or other business association with, any person who was at the Closing Date an employee, partner, representative, or manager of AMP engaged in the activities of Qualitronix. Similarly for such three year Period, AMP, solely as to its Aerospace and Government Systems Sector, shall not solicit to employ any person who is then employed by DAH or any of its affiliates or subsidiaries. 4.2.4 INJUNCTIVE RELIEF. AMP acknowledges and agrees that DAH's remedy at law for any breach of any of AMP's obligations under Subsections 4.2.2, 4.2.3 or 4.2.9 hereof would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in a proceeding which may be brought to enforce any provision of Subsections 4.2.2, 4.2.3 or 4.2.9 without the necessity of proof of actual damage. The rights and remedies conferred upon DAH under this Section 4.2.4, elsewhere in this Agreement, or by any instrument or law shall be cumulative and may be exercised singularly or concurrently. 4.2.5 CONDUCT OF BUSINESS OF AMP PRIOR TO CLOSING DATE. AMP agrees that on and after the date hereof and prior to the Closing Date: (a) The operations, practices and activities related to Qualitronix shall be conducted only in the ordinary course of business and consistent with past practice; (b) Reserved; (c) Reserved; (d) Reserved (e) Reserved (f) Except as set forth in Schedule 4.2.5(f), AMP, shall not, with respect to the activities of Qualitronix or any of the Assets: (i) incur, become subject to, or suffer, or agree to incur, become subject to or suffer, any obligation or liability (absolute or contingent) except current liabilities incurred, and obligations under contracts entered into, in the ordinary course of business; Page 21 (ii) discharge or satisfy any lien or encumbrance or pay any obligation or liability (absolute or contingent) other than liabilities payable in the ordinary course of business; (iii) mortgage, pledge or subject to lien, charge or any other encumbrance, any of the Assets or agree so to do; (iv) sell or transfer or agree to sell or transfer any of its assets, or cancel or agree to cancel any debt or claim, except in each case in the ordinary course of business; (v) consent or agree to a waiver of any right of substantial value; (vi) enter into any transaction other than in the ordinary course of its business; (vii) without the express written consent of DAH, increase the rate of compensation payable or to become payable by it to any Key Employee over the rate being paid to such Key Employee at October 31, 1996; (viii) Reserved; (ix) terminate any contract, agreement, license or other instrument to which it is a party; (x) through negotiation or otherwise, make any commitment or incur any liability or obligation to any labor organization; (xi) without the express written consent of DAH, make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Employee; (xii) Reserved; (xiii) without the express written consent of DAH, directly or indirectly pay or make a commitment to pay any severance or termination pay to any Employee; (xiv) Reserved; (xv) introduce any new method of management, operation or accounting with respect to its business or any of the assets, properties or rights applicable thereto; (xvi) offer or extend more favorable prices, discounts or allowances than were offered or extended regularly on and prior to November 7, 1996, other than in the ordinary course of business; (xvii) make capital expenditures or commitments therefor without the express written consent of DAH; and (xviii) hire any employee earning a wage or salary of more than $30,000 per year. Page 22 (xix) except as may be specifically requested, ship any Contact Products other than pursuant to the delivery schedule set forth in any purchase order or contract, nor build up inventory inconsistent with past practices (g) AMP shall use its best efforts to preserve Qualitronix's activities intact, to keep available to Qualitronix its present employees, and to preserve the good will of its suppliers, customers and others with whom business relationship exist; and (h) AMP shall not take, agree to take or permit to be taken any action or do or permit to be done anything in the conduct of the Qualitronix' activities, or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement or which would cause any of the representations or warranties of AMP contained herein to be or become untrue in any material respect. 4.2.6 INSPECTION OF BOOKS AND RECORDS. From the date of this Agreement until the Closing Date, upon reasonable request by DAH, AMP shall make or cause to be made available to DAH for examination those documents, records and information as set forth in Section 1.1 including, but not limited to those related to the Assets and other materials such as books of account, contracts, agreements, commitments, records and its documents directly to subject matter of this Agreement and shall permit DAH and its representatives, attorneys, accountants and agents to have access to and to copy the same at all reasonable times. In addition, AMP shall make, or cause to be made, available to DAH and its representatives, attorneys, accountants and agents the Assets and all of the above described records for any environmental compliance audit, any environmental site assessment (including soil, groundwater and/or other testing) and any other physical inspection which DAH may elect to conduct at its own expense. 4.2.7 FURTHER ASSURANCES. On and after the Closing Date, AMP shall prepare, execute and deliver, at their expense, such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action as DAH shall reasonably request at any time or from time to time in order to perfect, confirm or evidence in DAH title to all or any part of the Assets or to consummate, in any other manner, the terms and conditions of this Agreement. 4.2.8 PRESS RELEASES, ANNOUNCEMENTS AND INTRODUCTIONS. (a) Neither AMP nor DAH shall issue any press release or announcement, including announcements to employees, relating to the subject matter of this Agreement without the prior written approval of the other parties hereto; PROVIDED, HOWEVER that any party may make any public disclosure it believes in good faith is required by law (in which case it will advise the other parties hereto prior to making the disclosure). On the Closing Date, AMP and DAH will issue mutual public announcements and/or press releases announcing the transaction contemplated by this Agreement. (b) At a mutually agreeable time prior to the Closing, but not earlier than one week prior to the Closing, AMP shall introduce representatives of DAH to Customers, Distributors and Key Employees of Qualitronix for the purpose of facilitating transition or otherwise assist DAH in accomplishing such transition. Page 23 4.2.9 COVENANT NOT TO COMPETE AMP shall enter into and observe, according to its terms that Covenant Not to Compete as set forth in EXHIBIT B hereto, pursuant to which AMP shall agree to not, directly or indirectly, engage, anywhere in the United States in the business of manufacturing, distributing or selling Contact Products for Cylindrical Connectors for military and aerospace applications for a period of four years following the Closing Date. 4.2.10 DELIVERY OF HISTORIC PERFORMANCE SCHEDULES. AMP shall deliver the Historic Performance Schedule required by Section 3.2.4 not later than five days following the execution of this Agreement for review by DAH. 4.2.11 PAYMENT OF SEVERANCE In the event that DAH shall terminate any employee of AMP employed by DAH pursuant to Section 4.1.8(a) at any time during the sixty (60) days following the Closing Date, AMP shall pay to any such terminated employee such severance benefits as would have been paid had such employee still been employed by AMP. DAH shall promptly notify AMP of its intent to make such termination and AMP shall thereupon pay such severance benefits in accordance with its policies and procedures. 4.2.12 RESERVED.. 4.2.13 INDEMNITY REGARDING BULK SALES, ETC. AMP hereby agrees to indemnify and hold harmless DAH from any claims, costs or liabilities incurred as a result of the failure of AMP to comply with any and all requirements of sales tax and bulk sales laws and regulations arising under Pennsylvania, California and any other jurisdiction in connection with the transactions contemplated herein, including all pre-closing notice, payment and receipt requirements in connection with the transactions contemplated by this Agreement. 4.2.14 DISTRIBUTOR TERMINATIONS AFTER CLOSING DATE. AMP shall indemnify and save DAH harmless from any and all costs or expenses related to returns of Contract Products from any Distributor as set forth in Section 2.6.4. 4.2.15 USE OF NAME. After the Closing Date, DAH shall not use the name "AMP" in connection with the activities of Qualitronix. 4.2.16 HOLD HARMLESS. Except for the assumed liabilities set forth in Section 2.6, for a period of two years from the Closing Date, AMP agrees to indemnify and hold harmless DAH (the "AMP Indemnification") from any claims, costs or liabilities, which in exceeds $10,000 for each claim of Indemnification, arising from a breach of any of the warranties and representations of AMP set forth herein (the "DAH Claims"). DAH Claims relating to matters of like or similar kind shall be aggregated and each shall not be considered a separate claim. In connection therewith, AMP shall undertake to defend DAH with respect to any such DAH Claims asserted at its sole cost and expense upon receipt of notice of such DAH Claims. 4.2.17 ACCESS TO AMP SYSTEM-TRANSITION For such period as DAH shall deem reasonably necessary, but not to exceed one year from the Closing Date, AMP shall provide to DAH access to the AMP System for the purposes of facilitating a transition by DAH from the AMP System to its own management information system. Included in such access shall be utilization of the installed routers connecting the Local Area Network to the main AMP System. The parties shall establish such systems and procedures to assure that neither party shall have access to any confidential or proprietary information of the other during this transition period. DAH shall use its best efforts to conclude this transition as quickly as Page 24 possible. For the first 120 days following the Closing Date, such access shall be without charge. Thereafter DAH shall pay a monthly fee of $8,500 for such access. 4.2.18 RESERVED 5. CONDITIONS PRECEDENT TO CLOSING. 5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF DAH AND AMP The Parties shall have entered into the Supply Contracts, which Supply Contracts shall be effective as of the Closing Date. 5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF DAH. The obligation of DAH to close the transactions contemplated by this Agreement is subject to the fulfillment of all of the following conditions precedent on or prior to the Closing Date: 5.2.1 Except for such breaches as would not have a Material Adverse Effect, each and every representation and warranty made by AMP or Whitaker in this Agreement shall be true in all respects when made and shall be true in all material respects as if originally made on and as of the Closing Date. 5.2.2 All obligations and covenants of AMP to be performed under this Agreement through, and including on, the Closing Date (including, without limitation, all obligations which AMP would be required to perform at the Closing if the transactions contemplated by this Agreement were consummated), including obtaining the Material Consents pertaining to the matters set forth in Section 1.1.8(a), shall have been performed in all material respects. 5.2.3 No injunction shall have been entered by a court of competent jurisdiction and remain in effect which would restrain or prohibit the transactions contemplated by this Agreement. 5.2.4 Reserved. 5.2.5 DAH's Board of Directors shall have approved the transactions contemplated by this Agreement. 5.2.6 Since the date of this Agreement, there shall have been no change in the financial condition, business or operations of Qualitronix and there shall have been no damage or loss having, or reasonably expected to have a Material Adverse Effect on the Assets. 5.2.7 AMP or Whitaker, as the case may be, shall have delivered, to DAH each of the following, in each case duly and properly executed (if appropriate) and in form and substance reasonably satisfactory to DAH: (a) A good and sufficient General Conveyance, Assignment and Bill of Sale, conveying, selling, transferring and assigning to DAH title to all of the Assets free and clear of all security interests, liens, charges, encumbrances or equities whatsoever, except those listed on Schedules 3.2.14 and 3.2.15. (b) The books and records described in Section 1.1.15; and certificates of each policy of insurance described in Section 3.2.12, together with evidence that such policies are in force on the Closing Date. (c) The covenant not to compete as provided in Section 4.2.9 Page 25 (d) The Historic Performance Schedule described in Section 3.2.4. (e) Resolutions of the directors of AMP and Whitaker authorizing the execution and delivery of this Agreement by AMP and Whitaker and the performance of its obligations hereunder, certified by the Corporate Secretary of AMP and Whitaker or an opinion of counsel to AMP, that such is not required. (f) AMP shall have delivered to DAH, in form suitable for filing, such certificates, consents and other documents as are necessary or desirable to effect the transfer of the registration of any name conveyed to DAH pursuant to this Agreement, in Pennsylvania, California, Delaware and in each other state where AMP or Whitaker is qualified to do business with respect to the activities of Qualitronix or has registered any such name under a "trade name" or "fictitious name" statute or similar law or has taken any other action in order to obtain or protect rights in such name. (g) A favorable opinion of counsel for AMP, addressed to DAH and dated the Closing Date, substantially in the form of EXHIBIT C attached hereto. (h) A certificate of the Pennsylvania, California and Delaware Secretaries of State, each dated as of a date not earlier than ten days prior to the Closing Date, as to the good standing of AMP or Whitaker in such States, as applicable. (i) Such other separate instruments of sale, assignment or transfer that DAH may reasonably deem necessary or appropriate in order to perfect, confirm or evidence title to all or any part of the Assets. 5.2.8 DAH shall have approved, in writing, the Due Diligence as set forth in Schedule 5.2.8 on or before 5:30 pm Pacific Time of the 10th business day following receipt by DAH of all of the schedules and related information to be furnished pursuant to Schedules 3.2.4 and 5.2.8 (the "Diligence Schedules"). 5.2.9 DAH shall use its best efforts to obtain the consent of its senior lender and of its subordinated lender of the transaction to the Closing of this Agreement on or before 5:30pm Pacific Time of the 7th day following receipt by DAH of the Diligence Schedules. Such time for consent shall be continued day to day until the time scheduled for Closing. In the event that such consent has not been obtained by the Closing Date, the Closing Date shall be extended day to day until December 27, 1996. 5.2.10 In the event that DAH shall have failed to provide its Due Diligence Approval as specified in Section 5.2.8 or has failed to obtain the approvals required by Section 5.2.9 by the times specified therein, this Agreement shall thereupon be deemed a nullity and VOID AB INITIO without further action by any party without any further liability by any party hereto to any other party. 5.2.11 No Key Employee shall have indicated an intention to terminate such Key Employee's employment with DAH subsequent to the Closing 5.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF AMP OR WHITAKER. Each and every obligation of AMP or Whitaker, as the case may be, to be performed on or before the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions. Page 26 5.3.1 Except for such breaches as would not have a Material Adverse Effect, each and every representation and warranty made by DAH shall have been true in all respects when made and shall be true in all material respects as if originally made on and as of the Closing Date. 5.3.2 All obligations and covenants of DAH to be performed under this Agreement through, and including on, the Closing Date (including, without limitation, all obligations which DAH would be required to perform at the Closing if the transactions contemplated by this Agreement were consummated) shall have been performed in all material respects. 5.3.3 No injunction shall have been entered by a court of competent jurisdiction and be in effect which would restrain or prohibit the consummation of the transactions contemplated by this Agreement. 5.3.4 A certificate of the Ohio and California Secretaries of State, each dated as of a date not earlier than ten days prior to the Closing Date, as to the good standing of DAH in such States. 5.3.5 AMP's Board of Directors shall have approved the transactions contemplated by this Agreement. 5.3.6 Payment of the Initial Purchase Price on the Closing Date, by wire transfer of immediate available funds, as determined in accordance with Section 2. 5.3.7 An opinion of counsel for DAH, addressed to AMP and dated the Closing Date, in the form of EXHIBIT D attached hereto. 5.3.8 The Assumption Agreement with respect to the Assumed Liabilities, in the form of EXHIBIT E attached hereto. 5.4 ALLOCATION. For purposes of income tax reporting, the parties shall, within one year following the Closing, enter into an agreement setting forth that portion of the total purchase price which shall be allocated to each portion thereof and agree that they shall report such allocation for all purposes including for federal and state taxing purposes. 6. RESERVED 7. MISCELLANEOUS PROVISIONS. 7.1 NOTICE. All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made, if in writing, and (i) if served by personal delivery to the party for whom intended (which shall include overnight delivery by Federal Express or similar service), (ii) or 3 business days after being deposited, postage prepaid, certified or registered mail, return receipt requested, in the United States mail bearing the address shown in this Agreement for, or such other address as may be designated by writing hereafter by, such party, or (iii) if sent by telecopier to the number showing in this Agreement for, or such other number as may be designated in writing hereafter by, such party and immediately confirmed by sending a copy of such notice by either method described in clause (i) or (ii) above. 7.2 POST-CLOSING ACCESS. At the earlier of (i) such time as there shall have been a change in control of DAH or (ii) the expiration of seven (7) years commencing on the Closing Date, or for such longer period as may be required by applicable law, DAH shall retain all books, records and other data delivered to it relating to the activities of Qualitronix prior to the Closing Date. DAH shall grant access to such books, Page 27 records and other data to AMP and its representatives during regular business hours upon reasonable prior notice to the extent that such access is required by AMP in connection with tax, regulatory or contractual matters, or otherwise in order to permit AMP to comply with applicable law, or in order to defend against any claim brought against AMP. 7.3 ARBITRATION. Any dispute, claim or controversy arising out of or relating to this Agreement or breach thereof shall be decided by Arbitration conducted in Los Angeles, California before a single arbitrator chosen by mutual agreement of the parties. In the event that the parties are unable to agree upon a single arbitrator after three submissions of proposed arbitrators, each party shall select an arbitrator and such arbitrators shall choose a third arbitrator and the matter shall then be heard and resolved by a panel of three arbitrators. The arbitration proceeding shall be otherwise conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association and which arbitration provides for reasonable discovery, including depositions, interrogatories and production of documents. The decision of the arbitrator(s) shall be final and binding on the parties and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The cost of arbitration shall be shared equally between the parties. 7.4 ENTIRE AGREEMENT. This Agreement, the Supply Contracts, the Exhibits and Schedules hereto, and the documents referred to herein and therein embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, relative to said subject matter. 7.5 BINDING EFFECT: ASSIGNMENT. This Agreement and the rights and obligations arising hereunder shall inure to the benefit of and be binding upon AMP or Whitaker, as the case may be, its successors and permitted assigns, and DAH, its respective successors and permitted assigns. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party or parties except that DAH shall have the right to assign, in whole or in part, its rights hereunder to one or more affiliates of DAH, which in each case shall be a wholly-owned subsidiary of DAH. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 7.6 CAPTIONS. This Agreement and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 7.7 WAIVER: CONSENT. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any condition of this Agreement or breach by the other party of any of its obligations or representations hereunder or thereunder shall be deemed to be a waiver of any other condition or subsequent or prior breach of the same or any other obligation or representation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. 7.8 NO THIRD PARTY BENEFICIARIES. Subject to Section 7.3, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto, any rights, remedies or other benefits under or by reason of this Agreement. Page 28 7.9 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 7.10 SEVERABILITY. With respect to any provision of this Agreement finally determined by a court of competent jurisdiction to be unenforceable, AMP, Whitaker and DAH hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision of this Agreement cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.11 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the State of California. 7.12 CLOSING COSTS AND TRANSFER TAXES. 7.12.1 DAH shall be responsible for all sales, use or other taxes imposed by reason of the transfers of the Assets provided hereunder and any deficiency, interest or penalty asserted with respect thereto; provided however, DAH shall not be responsible for any taxes imposed on income or capital gain assessed as a result of the transactions contemplated by this Agreement. 7.12.2 DAH shall pay all the fees and costs of recording or filing all applicable conveyancing instruments. 7.12.3 EXPENSES. Each party shall, except as otherwise expressly provided herein, bear all of the costs and expenses of such party's execution, delivery and performance of this Agreement. AGREED and entered into as of the last date set forth below: AMP INCORPORATED DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ J. Emay By: /s/ R. Jack DeCrane ---------------------------- ---------------------------- Title: Chairman of the Board Title: CEO ------------------------ ------------------------ Date: 11/27/96 Date: 11/24/96 ------------------------ ------------------------ THE WHITAKER CORPORATION SOLELY WITH RESPECT TO SECTIONS 1.1.7 AND 3.2.10 AND PROVISIONS RELATING TO WHITAKER By: ---------------------------- Title:------------------------- Date:-------------------------- Page 29 7.9 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 7.10 SEVERABILITY. With respect to any provision of this Agreement finally determined by a court of competent jurisdiction to be unenforceable, AMP, Whitaker and DAH hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision of this Agreement cannot be reformed, such provision shall be deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.11 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the State of California. 7.12 CLOSING COSTS AND TRANSFER TAXES. 7.12.1 DAH shall be responsible for all sales, use or other taxes imposed by reason of the transfers of the Assets provided hereunder and any deficiency, interest or penalty asserted with respect thereto; provided however, DAH shall not be responsible for any taxes imposed on income or capital gain assessed as a result of the transactions contemplated by this Agreement. 7.12.2 DAH shall pay all the fees and costs of recording or filing all applicable conveyancing instruments. 7.12.3 EXPENSES. Each party shall, except as otherwise expressly provided herein, bear all of the costs and expenses of such party's execution, delivery and performance of this Agreement. AGREED and entered into as of the last date set forth below: AMP INCORPORATED DeCRANE AIRCRAFT HOLDINGS, INC. By: By: ---------------------------- ---------------------------- Title: Title: ---------------------------- ---------------------------- Date: Date: ---------------------------- ---------------------------- THE WHITAKER CORPORATION SOLELY WITH RESPECT TO SECTIONS 1.1.7 AND 3.2.10 AND PROVISIONS RELATING TO WHITAKER By: /s/ [illegible] ---------------------------- Title: President ------------------------- Date: November 29, 1996 ------------------------- Page 29 EX-10.21 21 EXHIBIT 10.21 10.21 STOCK PURCHASE AGREEMENT, DATED JANUARY 1, 1995 AMONG REGISTRANT, CORY COMPONENTS, INC. AND BRIAN GAMBERG STOCK PURCHASE AGREEMENT This agreement (Agreement) is made and entered into effective January 1, 1995 by and between DECRANE AIRCRAFT HOLDINGS, INC., AN OHIO CORPORATION ("DAH") and CORY COMPONENTS, INC., A CALIFORNIA CORPORATION ("Cory") and BRIAN GAMBERG ("Gamberg") based on the following facts: A. DAH is the ultimate parent which presently owns seven hundred fifty (750) shares of the common stock, without par value ("Common Stock") of CORY. B. Gamberg owns two hundred fifty (250) shares of the Cory Common Stock. C. Gamberg desires to sell and DAH desires to buy the two hundred fifty (250) shares of Cory Common Stock Based on the foregoing, DAH and Gamberg agree as follows: 1. TRANSFER OF SHARES. Subject to the satisfaction or waiver of the conditions to the performance of the obligations of the parties to this Agreement, effective as of January 1, 1995, DAH shall purchase from Gamberg and Gamberg shall transfer to DAH, free and clear of all liens, charges or encumbrances, voluntary or involuntary, two hundred fifty (250) shares of the Cory Common Stock. The delivery of the two hundred fifty (250) shares of Cory Common Stock shall be made at the Closing (as herein defined) conditioned upon the satisfaction or waiver of the Conditions specified in Section 4 of this Agreement. 2. PURCHASE PRICE. At the Closing, DAH shall pay in immediately available funds, the sum of Five Million Five Hundred Twenty Five Thousand Dollars ($5,525,000.00) (the Purchase Price). 3. REPRESENTATIONS AND WARRANTIES. 3.1 DAH and Cory hereby represent and warrant to Gamberg that except as set forth on the schedules and exhibits to this Agreement, the representations and warranties of DAH and Cory contained in this Agreement are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing: 3.1.1 DAH is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as now being conducted. DAH is qualified to do business in Ohio. Cory is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as now being conducted. Cory is qualified to do business in California. 1 3.1.2 DAH and Cory have the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder and consummate the transactions contemplated hereby. This Agreement constitutes the valid and binding obligation of DAH and Cory, enforceable against DAH and Cory, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.1.3 DAH nor Cory have employed a broker or finder or incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses and no broker or finder has acted directly or indirectly for DAH or Cory in connection with this Agreement or the transactions contemplated hereby. 3.1.4 No representation or warranty made by DAH or Cory in this Agreement or Exhibit hereto or other writing furnished to Gamberg pursuant to this Agreement, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein not misleading. 3.1.5 Except as disclosed on Exhibit 3.1.5., since December 31, 1994 (i) there has been no material effect or fact known to DAH or Cory Holdings which adds significant value to the company which material effect, is not known to Gamberg: (ii) there have been no offers, negotiations or interest expressed to purchase Cory, its business or its stock; (iii) Cory's profits have been and are expected to be within the 1995 budget heretofore provided to Gamberg. 3.1.6 The Closing of the transaction contemplated by this Agreement, will not render DAH, Cory or Cory Holdings insolvent. 3.2 To the best of his knowledge, without investigation, Gamberg hereby represents and warrants to DAH that except as set forth on the schedules and exhibits to this Agreement, and except as is known to or by any officer or attorney of DAH or Cory Holdings, Inc., the representations and warranties of Gamberg contained in this Agreement are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing: 3.2.1 Subject to spousal consent, Gamberg has all requisite power, authority and legal capacity and is competent to execute and deliver this Agreement and the documents referred to herein and to perform the obligations contemplated hereby and thereby. This Agreement constitutes the valid and binding obligation of Gamberg, enforceable against Gamberg in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 2 3.2.2 Since December 31, 1994, except as disclosed on Exhibit 3.2.2 or as otherwise alleged in the Actions, there has not been any adverse change in any customer or supplier relationship or the business operations, assets, properties or rights prospects or condition of Cory, or, any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change (a "Material Adverse Effect") or any other event or condition of any character which has had a Material Adverse Effect or may reasonably be expected to result in a Material Adverse Effect. 3.2.3 [Intentionally Left Blank]. 3.2.4 [Intentionally Left Blank]. 3.2.5 Neither Cory nor Gamberg is under investigation with respect to, or has been charged with or given notice of any violation of any applicable law. 3.2.6 Except as set forth on Exhibit 3.2.6, there is no patent, invention, trade secret, process, proprietary right, proprietary knowledge, know how, computer software, trademark, name, service mark, trade name, copyright, mark, symbol, logos, franchise, permit license, sublicense or other such right necessary for the operation of the business of Cory which is not in the possession of and owned by Cory. 3.2.7 Gamberg has not employed any broker or finder or incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses and no broker or finder has acted directly or indirectly for Gamberg in connection with this Agreement or the transactions contemplated hereby. 3.2.8 No representation or warranty made by Gamberg in this Agreement or Exhibit hereto or other writing furnished to DAH pursuant to this Agreement, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein not misleading. Except for the representations and warranties of Gamberg set forth in Sections 3.2.1 through 3.2.8, DAH is making the purchase contemplated herein based on its own investigation, knowledge and understanding of Cory; the representations and warranties of Gamberg made in such sections are necessary based upon the circumstance that as president of Cory, Gamberg may be in a position to have knowledge of facts and events not known to Cory Holdings or DAH. 3 4. CONDITIONS PRECEDENT TO DAH'S OBLIGATION TO CLOSE. Each and every obligation of DAH to be performed at the Closing shall be subject to the satisfaction as of or before the Closing of the following conditions, unless any such condition is waived by DAH: 4.1 Gamberg's representations and warranties contained in this Agreement and the other documents executed pursuant to this Agreement, shall have been true and correct in all material respects when made and shall be true and correct in all material respects at and as of the Closing as if such representations and warranties were made as of the Closing; 4.2 DAH shall have obtained the consents listed on Exhibit 4.2; DAH shall use its best efforts to obtain such consents. 4.3 There shall have been no material adverse change in the financial or business condition of the business, operations or prospects of Cory between the date of this Agreement and the Closing; 4.4 Except for Gamberg v. Cory Components, Inc., et al., Case No. BC095184 and Gamberg v. Cory Holdings, Inc., Case No. BC115269, the actions brought by Gamberg being dismissed at the Closing (collectively the "Actions") or any other actions which have been served on Cory on or before the date hereof, there shall be no pending or threatened material: claim, action, litigation or proceeding, judicial or administrative, or governmental investigation against Cory; 4.5 Gamberg shall have executed and delivered to Cory an Employment Agreement in the form of Exhibit 4.5; 4.6 On the dates specified in a notice to be given to Gamberg by Cory not less than 10 days before an international trip or 7 days before a domestic trip outside of California, Gamberg will arrange and attend meetings with the customers and vendors identified on Exhibit 4.6. Notwithstanding the foregoing notice requirement, Gamberg shall use his best efforts to accommodate DAH in the scheduling of such trips. At each such meeting, Gamberg will describe to the representatives of the customers or vendors present the fact that Gamberg is selling his stock in Cory to DAH and that Gamberg is entering into an employment agreement through December 31, 1997 with Cory and that he will continue to function as the head operating officer of Cory. At such meetings, Gamberg will advise such representatives that he is pleased with this transaction, is supportive of DAH and plans to continue working with Cory for a period of at least 2 years. 4.7 Gamberg shall have delivered a certificate to Cory in the form of Exhibit 4.7, that the conditions to Closing have occurred. 4.8 Gamberg shall have delivered to Cory a Consent of Spouse executed by Gamberg's estranged spouse in a form and content reasonably acceptable to Cory and its counsel. 4 4.9 Gamberg shall have executed and delivered to DAH a release in the form of Exhibit 4.9. 4.10 Gamberg shall have executed and delivered to DAH a Restrictive Covenant Agreement in the form of Exhibit 4.10. 4.11 A dismissal of the Actions with prejudice as against all parties. 5. CONDITIONS PRECEDENT TO GAMBERG'S OBLIGATION TO CLOSE. Each and every obligation of Gamberg to be performed at the Closing shall be subject to the satisfaction as of or before the Closing of the following conditions, unless any such condition is waived by Gamberg: 5.1 Cory shall have executed and delivered to Gamberg the Employment Agreement in the form of Exhibit 4.5 and a guaranty of the Restrictive Covenant Agreement in the form of Exhibit 5.1. 5.2 DAH shall have executed and delivered a release to Gamberg in the form of Exhibit 5.1. 5.3 DAH shall have executed and delivered a certificate to Gamberg in the form of Exhibit 5.3, that the conditions to Closing have occurred. 5.4 An indemnification executed by Cory in the form of Exhibit 5.4. 5.5 Gamberg shall have received payment of the Purchase Price in immediately available funds. 5.6 DAH and Cory shall have delivered a certified copy of the Resolution of the DAH Board of Directors and the Cory Board of Directors approving this Stock Purchase Agreement and related agreements. 5.7 A dismissal of the Actions with prejudice as against all parties. 6. INDEMNIFICATION. DAH hereby indemnifies and holds Gamberg harmless from any liability, loss, claim damage or expense incurred by Gamberg as a result of any acts or omissions to act by (i) DAH, Cory or the 75% shareholder of Cory (ii) as a result of Gamberg having performed any act known to and authorized by Cory's board of Directors during the period from the date of acquisition of Cory by Cory Holdings, Inc. until the Closing Date or as a result of conduct performed by Gamberg in the course and scope of his employment; provided, however that the indemnification provided in this Section 6 excludes any matter which is: (i) a breach of a warranty or representation by Gamberg in the Agreement, and (ii) intentional and illegal acts performed by Gamberg. As a condition to DAH's liability under this Section 6 in the event any third party asserts a claim against Gamberg of which DAH or Cory Holdings is not otherwise 5 specifically on notice, for which Gamberg seeks indemnity pursuant to this Section 6, Gamberg shall within such time as under the circumstances is prompt and reasonable and not prejudicial to DAH or Cory, give notice to DAH of the claim and immediately deliver to DAH any and all documents, in the possession or under the control of Gamberg, or other information reasonably needed to evaluate and defend the claim. At its expense, DAH shall have the right to select and appoint counsel (which counsel shall be subject to the reasonable approval but not selection by Gamberg) or other experts to defend Gamberg in any such claim. Nothing in this Section 6 shall prevent Gamberg, at his expense, from having his own counsel to monitor the defense provided by DAH and DAH's counsel shall cooperate with and provide such information to Gamberg's counsel as is reasonable to assist such counsel in monitoring the defense of such claim. 7. TERMINATION. Without limiting any remedy of any party, which rights are specifically reserved, this Agreement may be terminated and canceled at any time prior to the Closing only as follows: 7.1 By Gamberg, if any of the representations or warranties of DAH contained in this Agreement or any Exhibit are untrue in any material respect; 7.2 By DAH if any of the representations or warranties of Gamberg contained in this Agreement or any Exhibit are untrue in any material respect; 7.3 On or after February 21, 1996 by either party if the Closing shall not have occurred on or before February 20, 1996. 8. CLOSING. The Closing of the transaction contemplated by this Agreement shall take place at the offices of Spolin & Silverman, 100 Wilshire Boulevard, Suite 940, at 10 a.m., on the 3rd business day after DAH gives notice to Gamberg that all of the conditions to the Closing have been satisfied or waived. At the Closing, the parties shall make the transfers, deliver the documents and make the payments specified below (which deliveries and payments shall be deemed to have occurred concurrently): 8.1 Deliveries by or on behalf of DAH: 8.1.1 Payment of the Purchase Price; 8.1.2 Delivery of the Employment Agreement, in the form of Exhibit 4.5, executed by Cory; 8.1.3 Delivery of the Release, in the form of Exhibit 4.9, executed by DAH, Cory, Tri Star, Cory Holdings, Inc, R.G. MacDonald, R. Jack DeCrane, Robert Rankin, Judith Baker and Barbara DeCrane; 8.1.4 Delivery of the Restrictive Covenant Agreement, in the form of Exhibit 4.10 executed by DAH; and 6 8.1.5 Delivery of the Cory Indemnification in the form of Exhibit 5.4; 8.1.6 Delivery of a certificate in the form of Exhibit 5.3; 8.1.7 Delivery of the certified copy of the Resolutions of DAH's and Cory's Boards of Directors; 8.1.8 Delivery of the executed dismissal with prejudice of the Actions. 8.1.9 Delivery of the Guaranty of Restrictive Covenant in Section 5.1. 8.2 Deliveries by or on behalf of Gamberg: 8.2.1 A stock certificate or stock certificates duly endorsed with signatures guaranteed by a national bank or member firm of the New York Stock Exchange for 250 shares of Cory stock; 8.2.2 Delivery of a the Employment Agreement, in the form of Exhibit 4.5 executed by Gamberg; 8.2.3 [intentionally Left Blank]. 8.2.4 Delivery of a certificate executed by Gamberg in the form of Exhibit 4.7; 8.2.5 Delivery of a release executed by Gamberg, in the form of Exhibit 4.9; 8.2.6 Delivery of a Restrictive Covenant Agreement executed by Gamberg in the form of Exhibit 4.10; and Actions. 8.2.7 Delivery of the executed dismissal with prejudice of the Actions. 8.2.8 Delivery of a Consent of Spouse executed by Gamberg's estranged spouse in a form and content reasonably acceptable to Cory and its counsel. 7 9. NOTICES. All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made, in writing, (i) if served by personal delivery to the party for whom intended (which shall include overnight delivery by Federal Express or similar service), (ii) 3 business days after being deposited, postage prepaid, certified or registered mail, return receipt requested, in the United States mail bearing the address shown in this Agreement for, or such other address as may be designated in writing hereafter by, such party, or (iii) if sent by telecopy to the numbers shown in this Agreement, or such other numbers as may be designated in writing hereafter by, such party and immediately confirmed by sending a copy of such notice by either method described in clause (i) or (ii) above: If to DAH DeCrane Aircraft Holdings, Inc. or to Cory: Cory Components, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: R Jack DeCrane Fax No. (310) 536-0257 with a copy to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Fax Number: (216) 668-2518 with a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman Fax No. (310) 576-4844 If to Gamberg: Brian Gamberg 3230 Overland, No. 335 Los Angeles, California 90034 Fax No. (310) 536-0206 With a copy to: Silver & Freedman 1925 Century Park East, Suite 2100 . Los Angeles, California 90067 Attention: Perry S. Silver, Esq. Fax No. (310) 556-0832 8 10. ENTIRE AGREEMENT This Agreement, the Exhibits and Schedules hereto and thereto, and the documents referred to herein and therein embody the entire Agreement and the understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral and written, relative to said subject matter. 11. BINDING EFFECT: ASSIGNMENT. This Agreement and the rights and obligations arising hereunder shall inure to the benefit of and be binding upon DAH, their respective successors and permitted assigns, and Gamberg, his heirs, legal representativeS AND permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party or parties except that DAH shall have the right to assign its rights hereunder to an affiliate of DAH. Any transfer or assignment of any of the rights, interest or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 12. CAPTIONS. The Article and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 13. EXPENSES OF TRANSACTION. Except as otherwise provided herein, neither party shall be liable for any of the costs and expenses incurred by the other party in connection with the transactions contemplated hereby. 14. COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 15. GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the State of California. 16. COSTS AND ATTORNEYS' FEES. If any action, suit or other proceeding is instituted concerning or arising out of this Agreement, the party in whose favor judgment is rendered shall recover such party's reasonable costs and attorneys' fees incurred. 9 17. BOND EXONERATION. Within 5 days after the execution of this Agreement, and notwithstanding any termination of this Agreement, the Bond posted by Gamberg, in the Actions, at Gamberg's sole option, shall be either (i) limited to a sum not to exceed $5,000 or (ii) exonerated. 18. COOPERATION IN THE ACTIONS. The parties will cause their respective counsel of record in the Actions to advise the court (i) of the pendency of the settlement of the Actions and (ii) shall require a further status conference from the court or, if the court requires that a trial date be set, the parties shall use their best efforts to cause the court to set a date for the commencement of a trial in the actions which commencement date is not prior to June 1, 1996, and the parties shall execute all documents to effectuate the purposes of Sections 17 and 18. "DAH" DeCrane Aircraft Holdings, Inc., an Ohio Corporation /s/ R. Jack DeCrane - ---------------------------------------------- By: R. Jack DeCrane, Chief Executive Officer Cory Components, Inc., a California Corporation /s/ R. Jack DeCrane - ---------------------------------------------- By: R. Jack DeCrane, Chairman "Gamberg" /s/ Brian Gamberg - ---------------------------------------------- Brian Gamberg 10 EX-10.22 22 EXHIBIT 10.22 EXHIBIT 10.22 SECURITIES PURCHASE AGREEMENT, DATED SEPTEMBER 18, 1996 AMONG REGISTRANT, NASSAU CAPITAL PARTNERS L.P., NAS PARTNERS I L.L.C AND ELECTRA INVESTMENT TRUST P.L.C. [67] SECURITIES PURCHASE AGREEMENT among DECRANE AIRCRAFT HOLDINGS, INC. NASSAU CAPITAL PARTNERS L.P. NAS PARTNERS I L.L.C. AND ELECTRA INVESTMENT TRUST P.L.C. [68] dated as of September [69] 18, 1996 TABLE OF CONTENTS ----------------- Page ---- 1. TRANSACTIONS AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . 3 1.1 SALE AND PURCHASE OF THE SECURITIES . . . . . . . . . . . . . 3 1.2 PURCHASE PRICE FOR SECURITIES . . . . . . . . . . . . . . . . 3 1.3 PLACEMENT FEE. . . . . . . . . . . . . . . . . . . . . . . . 3 1.4 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.5 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . .[70] 3 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . 4 2.1 ORGANIZATION, STANDING, ETC. . . . . . . . . . . . . . . . . 4 2.2 CORPORATE ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4 2.3 DUE AUTHORIZATION, ISSUANCE, ETC. . . . . . . . . . . . . . . 5 2.4 CERTIFICATE OF INCORPORATION AND CODE OF REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . 5 2.5 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . 5 2.6 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES. . . . . . . . 6 2.7 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.8 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 7 2.9 CHANGES, DIVIDENDS, ETC.. . . . . . . . . . . . . . . . . . . 8 2.10 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . 8 2.11 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.12 PRODUCTS LIABILITY . . . . . . . . . . . . . . . . . . . . . . 9 2.13 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . 10 2.14 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.15 AFFILIATE TRANSACTIONS; NO SEPARATE CONSIDERATION . . . . . . 10 2.16 MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . . . 10 2.17 ABSENCE OF UNDISCLOSED LIABILITIES. . . . . . . . . . . [71] 10 2.18 OUTSTANDING DEBT. . . . . . . . . . . . . . . . . . . . . . . 11 2.19 TITLE TO AND CONDITION OF PROPERTY. . . . . . . . . . . . . . 11 2.20 ENVIRONMENTAL COMPLIANCE. . . . . . . . . . . . . . . . . . . 12 2.21 EMPLOYEE PLANS. . . . . . . . . . . . . . . . . . . . . . . . 16 2.22 PATENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . 19 2.23 FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . [72] 19 3. REPRESENTATIONS AND WARRANTIES OF NASSAU CAPITAL . . . . . . . . . . . 20 3.1 ORGANIZATION, STANDING, ETC.. . . . . . . . . . . . . . . . . 20 3.2 PARTNERSHIP ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 20 3.3 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES . . . . . . . 20 4. REPRESENTATIONS AND WARRANTIES OF EIT . . . . . . . . . . . . . [73] 21 4.1 ORGANIZATION, STANDING, ETC . . . . . . . . . . . . . . . . . 21 4.2 CORPORATE ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 21 4.3 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES . . . . [74] 21 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. . . . . . . . . . . . 22 5.1 RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . 22 5.2 INVESTMENT INTENT . . . . . . . . . . . . . . . . . . . . . . 22 5.3 SOPHISTICATED INVESTOR. . . . . . . . . . . . . . . . . [75] 22 - i - Page ---- 5.4 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . [76] 22 5.5 NO BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . 23 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS. . . . . . . . . . . . . . . . . . . . . . . . . 23 6.2 CONDITION PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 25 7. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 26 7.1 FINANCIAL STATEMENTS AND OTHER REPORTS. . . . . . . . . . . . 26 7.2 BOARD MEMBER; ATTENDANCE AT BOARD MEETINGS. . . . . . . . . . 28 7.3 RESERVATION OF SHARES . . . . . . . . . . . . . . . . . [77] 28 7.4 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . [78] 28 8. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 8.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 29 8.2 CERTAIN PROCEDURES. . . . . . . . . . . . . . . . . . . . . . 29 9. WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.1 TERM; EXERCISE . . . . . . . . . . . . . . . . . . . . . . . 30 9.2 SERIES OF WARRANTS AND TRIGGERING EVENT. . . . . . . . . . . 30 9.3 PUT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 9.4 ANTIDILUTION PROVISIONS. . . . . . . . . . . . . . . . . . . 32 9.5 REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 32 9.6 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . [79] 32 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . [80] 32 10.2 COSTS AND EXPENSES; TRANSFER TAXES . . . . . . . . . . . . . 33 10.3 CONFIDENTIALITY; PRESS RELEASES. . . . . . . . . . . . . . . 33 10.4 PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . .33 10.5 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . [81] 33 10.6 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.7 AMENDMENTS, WAIVERS, ETC . . . . . . . . . . . . . . . . . . 34 10.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . 34 10.9 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . 36 10.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 36 - ii - EXHIBITS Exhibit A Second Amended and Restated Certificate of Incorporation Exhibit B Form of Series H Warrant Exhibit C-1 Form of Nassau Note Exhibit C-2 Form of Electra Note Exhibit D Form of Series I Warrant Exhibit E Shareholders Agreement Exhibit F Registration Rights Agreement Exhibit G Form of Opinion of Spolin & Silverman SCHEDULES Schedule 1.5 ADS Asset Purchase Documents 2.4(a) Certificate of Incorporation of the Company 2.4(b) Code of Regulations of the Company 2.4(c) Resolutions 2.5(a) Capital Stock - Company 2.5(b) Subscriptions, Options, Warrants, etc. - Company 2.5(c) Voting Trusts, Proxies, etc. - Company 2.5(d) Registration Rights - Company 2.6 Consents, Authorization, Approvals, etc. 2.7(a) Subsidiaries; Capital Stock 2.7(b) Subscriptions, Options, Warrants, etc. - Subsidiaries 2.7(c) Voting Trust, Proxies, etc. - Subsidiaries 2.8 Financial Statements 2.9 Changes, Dividends, etc. 2.10 Compliance, Citations, etc. 2.11 Litigation 2.15 Affiliate Transactions; No Separate Consideration 2.16 Material Conflicts 2.17 Undisclosed Liabilities 2.18 Outstanding Debt 2.19 Real Property 2.20 Environmental Matters 2.21(a) Employee Benefit Plans 2.21(h) Present Value of Benefit Payable Presently 2.21(i) Payments, etc. 2.21(k) Labor Matters 2.22 Intangible Rights - iii - SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of September [1] 18, 1996 (this "Agreement"), is by and among DeCrane Aircraft Holdings, Inc., an Ohio corporation (the "Company"), Nassau Capital Partners L.P., a Delaware limited partnership located at 22 Chambers Street, Princeton, New Jersey ("Nassau Capital"), NAS Partners I L.L.C., a Delaware limited liability company also located at 22 Chambers Street, Princeton, New Jersey ("NAS" and, collectively with Nassau Capital, "Nassau") [2] AND Electra Investment Trust P.L.C., a corporation organized under the laws of the United Kingdom, located at 65 Kings Way, London, England ("EIT") [3] (NASSAU AND EIT are hereinafter sometimes referred to collectively as the "Investors", or individually as an "Investor"). W I T N E S S E T H: WHEREAS, the Company currently is authorized to issue 8,000,000 shares of Common Stock, without par value (the "Common Stock"), 167,702 shares of Series A Convertible Preferred Stock, without par value (the "Series A Stock"), 1,636,316 shares of Series B Convertible Preferred Stock, without par value (the "Series B Stock"), 3,000,000 shares of Series C Convertible Preferred Stock, without par value (the "Series C Stock"), and 2,000,000 shares of Series D Convertible Preferred Stock, without par value (the "Series D Stock,"), having the rights set forth in the Amended and Restated Certificate of Incorporation of the Company, included as Schedule 2.4(a) hereto (the "Certificate of Incorporation"); WHEREAS, the Company desires to further amend the Certificate of Incorporation to authorize 1,500,000 shares of Series E Convertible Preferred Stock, without par value (the "Series E Stock", and, together with the Series A Stock, Series B Stock, Series C Stock, and Series D Stock, the "Preferred Stock"), having the rights set forth in the Second Amended and Restated Certificate of Incorporation of the Company attached as Exhibit A hereto; WHEREAS, at the Closing (as hereinafter defined), the Company desires to sell 500,000 shares of newly-issued Series E Stock to Nassau for an aggregate purchase price of $2,000,000 (the "Nassau Shares") and 250,000 shares of newly issued Series E Stock to [4] EIT for an aggregate purchase price of $1,000,000 (the " [5] EIT Shares" and, collectively with the Nassau Shares, the "Shares"), and each of Nassau and [6] EIT wishes to acquire its respective Shares, all in accordance with the terms and conditions of this Agreement; WHEREAS, the Company desires to authorize the issuance of certain warrants, substantially in the form of Exhibit B hereto (together with any such warrants which may be issued 2 pursuant to any provision hereof or any provision contained in the warrants and any such warrants which may be issued in addition to or in substitution or exchange therefor, and including the Nassau Series H Warrants and the [7] EIT Series H Warrants (each as defined below), the "Series H Warrants"; and, together with the Shares, the "Equity Securities"), to purchase for a price of $0.01 per share certain shares of the Company's Common Stock; WHEREAS, at the Closing, the Company desires to sell Series H Warrants, initially equal to an aggregate of [8] 115,373 shares of Common Stock, subject to adjustment as set forth therein, to Nassau (the "Nassau Series H Warrants"), and Series H Warrants, initially equal to an aggregate of [9] 57,704 shares of Common Stock, subject to adjustment as set forth therein, to [10] EIT (the " [11] EIT Series H Warrants") and each of Nassau and [12] EIT wishes to acquire its respective Series H Warrant, all in accordance with the terms and conditions of this Agreement; WHEREAS, Nassau [13] will provide $2,000,000 to the Company in exchange for a promissory note, OR NOTES, in the aggregate principal amount of $2,000,000, substantially in the form attached hereto as Exhibit C-1, having the terms set forth therein (the "Nassau Note"); and [14] EIT will provide $1,000,000 to the Company in exchange for a promissory note in the aggregate principal amount of $1,000,000, substantially in the form attached hereto as Exhibit C-2, having the terms set forth therein (the " [15] EIT Note" and, collectively with the Nassau Note, the "Note"); WHEREAS, the Company desires to authorize the issuance of certain warrants, substantially in the form of Exhibit D hereto (together with any such warrants which may be issued pursuant to any provision hereof or any provision contained in the warrants and any such warrants which may be issued in addition to or in substitution or exchange therefor, including the Nassau Series I Warrants and the [16] EIT Series I Warrants (each as defined below), the "Series i Warrants"; and, together with the Note, the "Debt Securities") (the Equity Securities and the Debt Securities are collectively referred to herein as the "Securities"), to purchase for a price of $0.01 per share certain shares of the Company's Common Stock; and WHEREAS, at the Closing, the Company desires to sell Series I Warrants, initially equal to an aggregate of [17] 115,373 shares of Common Stock, subject to adjustment as set forth therein, to Nassau (the "Nassau Series I Warrants"), and Series I Warrants, initially equal to an aggregate of 57,704 shares of Common Stock, subject to adjustment as set forth therein, to [19] EIT (the " [20]EIT Series I Warrants") and each of Nassau and [21] EIT wishes to acquire its respective Series I Warrant, all in accordance with the terms and conditions of this Agreement. 3 NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the Company and the Investors, intending to be legally bound, hereby agree as follows: 1. TRANSACTIONS AND CLOSING 1.1 SALE AND PURCHASE OF THE SECURITIES. Upon the terms hereof and subject to the conditions set forth herein, the Company shall sell to Nassau and [22] EIT and Nassau and [23] EIT shall purchase from the Company, at the Closing, the Securities. 1.2 PURCHASE PRICE FOR SECURITIES. The aggregate purchase price to be paid by the Investors to the Company for the Securities shall be $6,000,000 (the "Subscription Price"). 1.3 PLACEMENT FEE. Upon the terms and subject to the conditions set forth herein, on the Closing Date (as hereinafter defined), the Company will pay by wire transfer to (i) Nassau Capital L.L.C. (an affiliate of Nassau Capital) a placement fee in the amount of $40,000 and (ii) to [24] Electra [25] Inc. (an affiliate of EIT) a placement fee in the amount of $20,000. 1.4 CLOSING. The closing of the purchase and sale of the Securities (the "Closing") will take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, two Business Days after the date on which all the conditions specified in Section 4 hereof shall have been satisfied, or on such other date or at such other place as the Investors and the Company may agree (the "Closing Date"). The Company will give the Investors five days' notice of the Closing Date and the time of Closing. At the Closing, the Company will deliver to the Investors (a) the Shares, registered in the Investors' names and in such denominations as the Investors shall request, (b) the Note, issued to the Investors in such denominations as the Investors shall request and, (c) the Series H Warrants and the Series I Warrants (collectively, the "Warrants"), registered in the Investors' names or those of the Investors' nominees, against payment of the Subscription Price by transfer in lawful money of the United States of America in immediately available funds to such bank and account as the Company may direct in writing. If at the Closing the Company shall fail to (w) tender to the Investors any of the Shares, (x) issue to the Investors any Note, (y) tender to the Investors any of the Warrants, or (z) have satisfied any of the closing conditions specified herein, or if such closing conditions shall not have been waived by the Investors, the Investors shall, at the Investors' election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights the Investors may have by reason of such failure. 4 1.5 USE OF PROCEEDS. The Company shall use the proceeds which it receives from the sale of the Securities hereunder solely for the consummation of the purchase by the Company of 100% of the assets of the Aerospace Display Systems Division of Allard Industries, Inc. (the "ADS Asset Purchase") pursuant to the terms and conditions of the ADS Asset Purchase Documents, set forth on Schedule 1.5 hereto, and for the payment of certain fees and expenses incurred by the Company in connection therewith AND HEREWITH. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Investors as follows: 2.1 ORGANIZATION, STANDING, ETC. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and each Subsidiary (as hereinafter defined) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Company and each Subsidiary have all requisite corporate power and authority to own and operate its material properties and assets and to carry on its business as now conducted. The Company and each Subsidiary are duly qualified to do business as foreign corporations and are in good standing in the State of Ohio and in each other jurisdiction in which the character or location of the properties and assets owned or operated by it or the nature of the material business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified could not reasonably be expected to have a material adverse effect on business, assets, liabilities, results of operations, financial condition or prospects of the Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect"). 2.2 CORPORATE ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS. (a) The Company has all requisite corporate power and authority to enter into this Agreement, the Shareholders Agreement (as hereinafter defined), the Registration Rights Agreement (as hereinafter defined) and such documents necessary or advisable to consummate the ADS Asset Purchase (the "ADS Asset Purchase Documents") and to perform its obligations contemplated hereunder and thereunder. (b) Within a reasonable period of time after the Closing Date, the Company will deliver to each of Nassau and [26] EIT a set of closing binders containing true and complete copies of the final, executed ADS Asset Purchase Documents. (c) All corporate action on the part of the Company and its subsidiaries, officers, directors and stockholders necessary for the authorization, execution and delivery by the Company of this Agreement, the Shareholders Agreement, the Registration Rights Agreement and the ADS Asset Purchase 5 Documents, the performance of all obligations of the Company hereunder and thereunder (including the authorization, issuance, sale and delivery of the Securities to be issued hereunder), has been taken. (d) This Agreement has been, and the Shareholders Agreement, the Registration Rights Agreement and the ADS Asset Purchase Documents when executed and delivered by the parties thereto will be, duly executed and delivered by authorized officers of the Company and constitutes, or when executed and delivered by the parties thereto will constitute, a valid and binding obligation of the Company and is, or when executed and delivered by the parties thereto will be, enforceable against the Company in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). 2.3 DUE AUTHORIZATION, ISSUANCE. ETC. The Securities being issued hereunder, when issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized and validly issued, fully paid and nonassessable. 2.4 CERTIFICATE OF INCORPORATION AND CODE OF REGULATIONS. Schedule 2.4(a) hereto is a complete and correct copy of the Certificate of Incorporation as currently in effect and on file with the Secretary of State of the State of Ohio. Schedule 2.4(b) hereto is a complete and correct copy of the Code of Regulations of the Company (the "Code of Regulations") as currently in effect. Schedule 2.4(c) hereto contains complete and correct copies of all resolutions of the Board of Directors of the Company, authorizing the execution, delivery and performance of this Agreement, the Shareholders Agreement, the Registration Rights Agreement and the ADS Asset Purchase Documents and the performance of all the obligations of the Company contemplated hereunder and thereunder and such resolutions are currently in full force and effect. 2.5 CAPITALIZATION. (a) The authorized capital stock of the Company consists of [27] 15,000,000 shares of Common Stock and 167,702 shares of Series A Stock, 1,636,316 shares of Series B Stock, 3,000,000 shares of Series C Stock and 2,000,000 shares of Series D Stock. The rights, preferences, convertibility and other characteristics of the shares of Common Stock and Preferred Stock (not including the Series E Stock) of the Company are as set forth in the Certificate of Incorporation and the Code of Regulations, subject to the terms of the Third Amended and Restated Shareholders Agreement. As of the date of this Agreement, [301,840] shares of Common Stock have been issued and are outstanding, and the beneficial and record ownership of such shares is as set forth on Schedule 2.5(a). All of such shares of Common Stock have been duly authorized and validly issued and are 6 fully paid and non assessable. As of the date of this Agreement, [167,702] shares of Series A Stock, [1,583,537] shares of Series B Stock, [2,346,471] shares of Series C Stock and [2,000,000] of the Series D Stock have been issued and are outstanding and the beneficial and record ownership of each such series is as set forth on Schedule 2.5(a). All of such shares of Preferred Stock (not including the Series E Stock) have been duly authorized and validly issued and are fully paid and non-assessable. (b) Except as set forth on Schedule 2.5(b) and except for the transactions contemplated by this Agreement, the Shareholders Agreement and the Registration Rights Agreement, there are no outstanding subscriptions, options, warrants, calls, contracts, preemptive rights, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatsoever under which the Company is or may be obligated to issue or acquire its capital stock. (c) Except as set forth on Schedule 2.5(c), Company is not a party to, and the Company has no knowledge of any, voting trusts, proxies or any other agreements or understandings with respect to the voting of any capital stock of the Company. (d) Except as set forth in Schedule 2.5(d), the Company has not granted or agreed to grant any rights relating to the registration of its securities under applicable federal and state securities laws, including piggyback rights. (e) Except as set forth on Schedule 2.5(b), the consummation of the transactions contemplated by this Agreement will not trigger the anti-dilution provisions or other price adjustment mechanisms of any outstanding subscriptions, options, warrants, calls, contracts, preemptive rights, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatsoever under which the Company is or may be obligated to issue or acquire its capital stock. 2.6 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES. The execution and delivery of this Agreement as of the date hereof, and the Shareholders Agreement, the Registration Rights Agreement and the ADS Asset Purchase Documents, as of the Closing Date (collectively, the "Closing Documents"), and the consummation of the transactions contemplated by any of the Closing Documents will not (i) violate the Certificate of Incorporation or Code of Regulations of the Company or any Subsidiary, (ii) conflict with or constitute a violation of any law, statute, judgment, order, decree or regulation applicable or relating to the Company or any of its Subsidiaries or to which any of its assets or properties is subject, or (iii) result in a breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of the Company or any Subsidiary pursuant to, any agreement or 7 other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any portion of their respective properties, assets or rights are bound or affected, except for those breaches, defaults, liens and encumbrances which in the aggregate could not reasonably be expected to have a Material Adverse Effect. No consent, authorization, approval, permit or order of, or notice to or filing with, any governmental authority is required in connection with the execution, delivery and performance of any of the Closing Documents by the Company and except for (x) consents, authorizations, approvals, permits and orders which have been obtained and filings which have been made as of the date hereof, (y) consents, authorizations, approvals, permits, orders and filings set forth on Schedule 2.6. 2.7 SUBSIDIARIES. (a) As used herein, "Subsidiary" shall mean (i) any corporation of which a majority of the securities entitled to vote generally in the election of directors thereof, at the time as of which any determination is being made, are owned by the Company, either directly or indirectly and (ii) any joint venture, general or limited partnership or other legal entity in which the Company is the record or beneficial owner, directly or indirectly, of a majority of the equity interests. Schedule 2.7(a) accurately sets forth each Subsidiary, including its name, place of incorporation or formation, the number of shares authorized for each class of the capital stock thereof, the number of shares issued and outstanding for each class of the capital stock thereof, and the record ownership of all capital stock issued thereby. All shares of capital stock of any Subsidiary directly or indirectly owned by the Company have been duly authorized and validly issued, are fully paid, non-assessable and, except as set forth on Schedule 2.7(a), are directly or indirectly owned by the Company free of any security interest, lien, pledge or other encumbrance. (b) Except as set forth on Schedule 2.7(b), there are no outstanding subscriptions, options, warrants, calls, contracts, preemptive rights, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatsoever under which any Subsidiary is or may be obligated to issue or acquire its capital stock. (c) Except as set forth on Schedule 2.7(c), there are no voting trusts, proxies or any other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. 2.8 FINANCIAL STATEMENTS. Schedule 2.8 includes true and complete copies of (i) the audited balance sheets of the Company as at December 31, 1993, 1994 and 1995 and the related audited statements of operations and of cash flows of the Company for the fiscal years then ended, including the auditors' opinions thereon and all notes thereto, and (ii) the unaudited balance sheet of the Company as at June 30, 1996, and the related 8 unaudited statement of operations of the Company for the period January 1, 1996 through June 30, 1996. Each of the foregoing financial statements (the "Financial Statements") was prepared in accordance with generally accepted accounting principles consistently applied (except, with respect to unaudited statements, for the omission of footnote disclosures and normal year end audit adjustments). Such balance sheets present fairly the financial position of the Company as of the dates stated thereon, and such statements of operations present fairly the results of the operations of the Company for the periods stated on such statements of operations. 2.9 CHANGES, DIVIDENDS, ETC. Except as set forth on Schedule 2.9, since December 31, 1995, (i) neither the Company nor any of its Subsidiaries has paid any management fee or declared or made any payment, loan, advance, dividend or other distribution to its affiliates or stockholders as such, or purchased or redeemed any shares of its capital stock, or obligated itself to do so; (ii) neither the Company nor any of its Subsidiaries has sold, transferred, encumbered or leased any of its assets except in the usual and ordinary course of business, or merged or consolidated with or into any other person, firm or entity; (iii) neither the Company nor any of its Subsidiaries has issued or sold any shares of its capital stock or other securities or granted any options or other rights with respect thereto; (iv) neither the Company nor any of its Subsidiaries has incurred any material obligation or liability except in the ordinary course of business; (v) there has not been any termination, discontinuation, closing or disposition of any material business operation of the Company or any of its Subsidiaries; and (vi) there has not been any change in the method of accounting or accounting practice or policy of the Company or any of its Subsidiaries; nor, except as set forth on Schedule 2.9, has the Company or any of its Subsidiaries (A) agreed to do any of the foregoing, other than pursuant to this Agreement, or (B) suffered any physical damage, destruction or other loss (whether or not covered by insurance) which has had or may have a Material Adverse Effect. Except as set forth on Schedule 2.9 hereto or in the Financial Statements, since December 31, 1995, there has been no Material Adverse Effect, nor is the Company aware of the occurrence of any event which constitutes or which would, with the giving of notice or the passage of time, constitute a default under any material agreement entered into by the Company or any of its Subsidiaries. 2.10 COMPLIANCE WITH LAWS. (a) Except as set forth in Schedule 2.10 attached hereto, the Company has not received notice of, or citation or summons for, and no complaint has been filed, no penalty has been assessed and no investigation or review is in process or', to the best knowledge of the Company, threatened by any governmental authority with respect to, any violation or alleged violation of any law, regulation, order or other legal requirement, or failure by the Company to have any permit, certificate, license, approval, registration or 9 authorization (including industry certificates and approvals and including, without limitation, FAA Supplemental Type Certificates ("STCs") required in connection with the operation of its business. The Company is not in default with respect to any order, writ, judgment, award, injunction or decree of any federal, state or local court or governmental or regulatory authority or arbitrator, domestic or foreign, applicable to or in connection with its business or any of its assets, properties or operations. (b) Except as set forth in Schedule 2.10 attached hereto, with respect to the operation of its business, the Company possesses and is in compliance with all material permits, certificates, licenses, approvals, registrations and authorizations (including industry certificates and approvals and including, without limitation, STCs) required under all applicable laws, rules and regulations, all of which are in full force and effect, and the business has been conducted and is now being conducted in compliance with all applicable laws, rules, regulations, judgments and orders of the United States and states, counties, municipalities and agencies thereof, including, without limitation, laws, rules and regulations relating to pollution and environmental control, equal employment opportunity, health and safety and zoning. 2.11 LITIGATION. Except as set forth in Schedule 2.11 attached hereto, there are no claims, actions, suits, proceedings, labor disputes or investigations in process by or against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened either by a written communication directed to the Company or by an oral communication directed to the Company by a stockholder of the Company, before any federal or state court, arbitrator or governmental authority by or against the Company which, if adversely determined, may reasonably be expected to have a Material Adverse Effect or in any liability on the part of the Company which would be material to the Company or which to the best knowledge of the Company, includes a claim against or involving the Company in excess of $100,000 or which questions the validity or legality of or seeks damages in connection with this Agreement or any action taken or to be taken pursuant to this Agreement. Except as set forth in Schedule 2.11 attached hereto, there are no outstanding judgments, decrees or orders of any court or governmental authority against the Company. 2.12 PRODUCTS LIABILITY. Except for lawsuits, claims (asserted or unasserted), damages and expenses adequately covered by the Company's insurance, there are no (i) liabilities of the Company, fixed or contingent, asserted or, to the best knowledge of the Company, unasserted, with respect to any product liability or any similar claim that relates to any product sold by the Company to others prior to the Closing Date, or (ii) liabilities of the Company, fixed or contingent, asserted or, to the best knowledge of the Company, unasserted, with respect to any claim 10 for the breach of any express or implied product warranty or any other similar claim with respect to any product sold by the Company to others prior to the Closing Date, other than standard warranty obligations (to replace, repair or refund) made by the Company in the ordinary course of the conduct of its business to purchasers of its products, and except, in each case, where such liabilities do not or would not reasonably be expected to have a Material Adverse Effect. 2.13 NO BROKERS OR FINDERS. No person, firm or entity has or will have, as a result of any act or omission of the Company, any right, interest or valid claim against the Company or the Investors for any commission, fee or other compensation as a finder or broker in connection with the transactions contemplated by this Agreement. 2.14 TAXES. The Company and its Subsidiaries have timely filed with all appropriate governmental authorities all material tax returns and reports which are required to be filed prior to the date hereof. Subject to any extensions duly requested and granted, the Company and its Subsidiaries have duly and timely paid in full all taxes shown as due on such returns and reports or, to the extent such taxes are accrued but not yet due, have adequately reserved for the timely payment of any and all such taxes when due. No issue has been raised by any taxing authority which could result in a deficiency in the amount of taxes shown as due and owing on any tax return or report required to be filed by the Company or any of its Subsidiaries. 2.15 AFFILIATE TRANSACTIONS; NO SEPARATE CONSIDERATION. Except as set forth on Schedule 2.15 hereto, there are no existing agreements, understandings or arrangements between the Company or any of its Subsidiaries, on one hand, and any shareholder set forth on Schedule 2.5(a) or any affiliate of any such shareholder, on the other hand, relating to the properties, assets or conduct of the business and operations of the Company or any of its Subsidiaries. 2.16 MATERIAL CONTRACTS. All contracts material to the business of the Company and its Subsidiaries, including all contracts involving payments of, or the provision of services valued at, amounts in excess of $100,000 per year (the "Material Contracts") are set forth on Schedule 2.16 and are valid and binding and enforceable in accordance with their respective terms subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). Except as set forth on Schedule 2.16, to the knowledge of the Company, there are no existing defaults, nor have any events or circumstances occurred which, with or without notice or the lapse of time or both, would constitute defaults, under any of the Material Contracts. 11 2.17 ABSENCE OF UNDISCLOSED LIABILITIES. Except for (a) liabilities reflected or reserved against in full in the Financial Statements or incurred after the date thereof in the ordinary course of business in an amount not exceeding $100,000 in the aggregate, (b) liabilities not yet due and payable or obligations to be performed or satisfied after the date hereof under the Material Contracts, (c) liabilities incurred in the ordinary course of business and not required to be reflected in the Financial Statements, and (d) as set forth on Schedule 2.17, neither the Company nor any of its Subsidiaries has, or will have upon consummation of the ADS Asset Purchase, any material liability or obligation of any nature, whether accrued, absolute or contingent. [PLEASE [28] ADD ASI WRITE-OFF TO SCHEDULE 2.17.] 2.18 OUTSTANDING DEBT. Except as set forth in Schedule 2.18, the Company does not, and each of its Subsidiaries do not, have any outstanding secured or unsecured Debt or commitments for any Debt, and as of the Closing Date there will exist no default or event of default by the Company or any of its Subsidiaries under the provisions of any instrument evidencing such Debt or of any agreement relating thereto that has or would be expected to have a Material Adverse Effect. As used in this Agreement, "Debt" shall mean, as to any person (calculated for any person without duplication): (i) all liabilities, whether recourse is limited or otherwise, for borrowed money or for the deferred purchase price of property or services (but excluding trade expenses and accounts payable incurred in the ordinary course of business and which are not overdue by more than 90 days unless being contested in good faith), including obligations under leases which would be treated as capital leases; (ii) reimbursement obligations with respect to letters of credit; (iii) any obligation secured by any property or asset of such person; (iv) any obligation with respect to currency or hedging agreements; and (v) any of the foregoing liabilities which such person has guaranteed. 2.19 TITLE TO AND CONDITION OF PROPERTY. The Company and its Subsidiaries have good and marketable title to all material property and assets (real, personal or mixed) reflected on the Financial Statements, free and clear of any security interest, mortgage, pledge, or other lien or encumbrance, except for (i) liens, mortgages and security interests securing indebtedness reflected on the Financial Statements, and (ii) security interests, mortgages, pledges and other liens and encumbrances which do not materially interfere with the operation of the business of the Company and its Subsidiaries. Such property and assets include all property and assets necessary to conduct the business and operations of the Company as now conducted. The Company and each of its Subsidiaries enjoys peaceful and undisturbed possession under all leases necessary in any material respect for the operation of its properties and businesses; and none of such leases contain any unusual or burdensome provisions which might materially affect or impair the 12 operation of such properties and businesses. Schedule 2.19 sets forth a description of all real property owned or leased by the Company or any Subsidiary. 2.20 ENVIRONMENTAL COMPLIANCE. Except as set forth on Schedule 2.20 attached hereto: (a) The Company and each of its Subsidiaries have obtained all environmental, health and safety permits, licenses and other authorizations required under any and all Environmental Laws the absence of which permit, license or other authorization would have a material adverse effect to the Company ("Environmental Permits") to carry on their respective business as now being or as proposed to be conducted. No modification, revocation, reissuance, alteration, transfer, or amendment of the Environmental Permits, or any review by, or approval of, any third party of the Environmental Permits is required in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of the Company following such consummation. Each Environmental Permit is in full force and effect and the Company and each of its Subsidiaries are in compliance with the terms and conditions thereof, and is, and has been, also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, provisions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, including, without limitation, the requirement to have obtained in the past then applicable Environmental Permits except as would not reasonably be expected to result in liability under Environmental Laws. To the best knowledge of the Company, there is no condition that could be reasonably expected to prevent or interfere with future compliance with Environmental Laws, including but not limited to compliance with required Environmental Permits. (b) To the best knowledge of the Company, no notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation, litigation, arbitration, administrative proceeding or review is pending or threatened by any governmental or other entity with respect to any past or present actual or alleged noncompliance with any Environmental Law, any Hazardous Material, or any alleged or actual failure by the Company or any of its Subsidiaries to have or to have had when necessary, any Environmental Permit. (c) Neither the Company nor any of its Subsidiaries now or previously owns, operates or leases a treatment, 13 storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and, except as would not reasonably be expected to result in liability under any Environmental law, (i) no polychlorinated biphenyls (PCBs) are or have been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (ii) no asbestos or asbestos-containing material is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iii) there are no landfills, underground storage tanks or surface impoundments, in each case either active or abandoned, at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials are present, have been otherwise Released or threatened to be Released, at, on, under, from or about any site or facility now or previously owned, operated, leased or otherwise used by the Company or any of its Subsidiaries. (d) Neither the Company nor any of its Subsidiaries has disposed of, transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to environmental liability against any Company or any of its Subsidiaries, or to any other location in a manner that could be expected to result in liability under any Environmental Law. (e) No Hazardous Material generated by the Company or any of its Subsidiaries has been recycled, treated, stored disposed of or Released by the Company or any of its 14 Subsidiaries at any location other than those listed in Schedule 2.20. (f) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company or any of its Subsidiaries and no site or facility now or previously owned, operated or leased by any Company and each of its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean up. (g) No liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries, and no government action has been taken or is in process that could subject any such site or facility to such liens and none of the Company or any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (h) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries and that could result in liability under any Environmental Law have been made available to the Investors. (i) There are no past or present actions, activities, events, conditions or circumstances, including without limitation the Release, threatened Release, emission, discharge, generation, treatment, storage or disposal of Hazardous Materials, in regard to any property currently or formerly owned, operated, leased or otherwise used by the Company or any of its Subsidiaries or the past and present operations or business of the Company or any of its Subsidiaries that would reasonably be expected to give rise to liability under any Environmental Laws or any contract or agreement. (j) Neither the Company nor any of its Subsidiaries has assumed, contractually or by operation of law, any liabilities, potential liabilities or obligations under any Environmental Laws. (k) Neither the Company nor any of its Subsidiaries has entered into, has agreed to, or is subject to any judgment, decree, order or other similar requirement of any governmental authority under any Environmental Laws, including without limitation those relating to compliance 15 with Environmental Laws or to investigation, cleanup, remediation or removal of Hazardous Substances. (l) No submission to or filing with, or any review or approval by, any third party is required under any Environmental Law, including without limitation the New Jersey Industrial Site Recovery Act, the Connecticut Transfer Act, the Illinois Responsible Property Transfer Act, and the Indiana Responsible Property Transfer Act, in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of the Company or its Subsidiaries following such consummation. (m) No matter or item referenced in Schedule 2.20 could reasonably be expected to result in a Material Adverse Effect. For purposes of this Section 2.20, the following definitions shall apply: "Environmental Laws" means any and all federal, state, and local laws, ordinances, rules, regulations, codes, duties under the common law or orders, including, without limitation, any requirements imposed under any permits, licenses, judgments, decrees, agreements or recorded covenants, conditions, restrictions or easements, the purpose of which is to protect the environment, human health, public safety or welfare, or which pertain to Hazardous Materials. "Hazardous Materials" means any product, substance, chemical, force, material or waste, whose presence, nature, quantity and/or intensity of existence, use, manufacture, processing, treatment, storage, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the property owned or leased by the Company or any of its Subsidiaries (the "Property") is either (A) potentially injurious to public health, safety, welfare, or the environment, or to the Property; (B) regulated, monitored or subject to reporting by any governmental agency; or (C) a basis for potential liability to any governmental agency or a third party under any applicable statute or common law theory. Without limiting the foregoing, the term, "Hazardous Materials," includes but is not limited to any material, waste or substance which is or contains (A) petroleum or petroleum products, including crude oil or any fraction thereof, natural gas, or synthetic gas or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) flammable explosives; (E) radioactive materials; (F) radon in excess of EPA recommended exposure limits or (G) paint containing concentrations of lead or mercury. 16 "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. 2.21 EMPLOYEE PLANS. (a) Schedule 2.21(a) contains a true and complete list of each "employee benefit plan" (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including, without limitation, multiemployer plans within the meaning of ERISA section 3(37)), stock purchase, stock option, severance, employment, change in control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required in the future as a result of the transaction contemplated by this Agreement or otherwise), whether formal or informal, oral or written, legally binding or not under which any employee or former employee of the Company has any present or future right to benefits or under which the Company has any present or future liability. All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the "Company Plans". (b) With respect to each Company Plan, the Company has delivered to the Investors a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable, (i) any related trust agreement, annuity contract or other funding instrument; (ii) the most recent determination letter; (iii) any summary plan description and other written communications (or a description of any oral communications) by the Company to its employees concerning the extent of the benefits provided under a Company Plan; and (iv) for the three most recent years (A) the Form 5500 and attached schedules; (B) audited financial statements; (C) actuarial valuation reports; and (D) attorney's response to an auditor's request for information. c) (i) Each Company Plan has been established and administered in accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations; (ii) each Company Plan which is intended to be qualified within the meaning of section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), is so qualified and has received a favorable determination letter as to its qualification and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification; (iii) with respect to any Company Plan, no actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or threatened, no facts or circumstances exist which could give rise to any such actions, suits or claims 17 and the Company will promptly notify the Investors in writing of any pending or threatened claims arising between the date hereof and the Closing Date; (iv) neither the Company nor any other party has engaged in a prohibited transaction, as such term is defined under Code section 4975 or ERISA section 406, which would subject the Company or the Investors to any taxes, penalties or other liabilities under Code section 4975 or ERISA sections 409 or 502(i); (v) no event has occurred and no condition exists that would subject the Company, either directly or by reason of its affiliation with any member of its Controlled Group (as hereinafter defined), to any tax, fine or penalty imposed by ERISA, the Code or other applicable laws, rules and regulations including, but not limited to the taxes imposed by Code sections 4971, 4972, 4977, 4979, 4980B, 4976(a) or the fine imposed by ERISA section 502(c); (vi) all insurance premiums required to be paid with respect to Company Plans as of the Closing Date have been or will be paid prior thereto and adequate reserves have been provided for on the Company's balance sheet for any premiums (or portions thereof) attributable to service on or prior to the Closing Date; (vii) for each Company Plan with respect to which a Form 5500 has been filed, no material change has occurred with respect to the matters covered by the most recent Form since the date thereof; (viii) all contributions required to be made prior to the Closing Date under the terms of any Company Plan, the Code, ERISA or other applicable laws, rules and regulations have been or will be timely made and adequate reserves have been provided for on the Company's balance sheet for all benefits attributable to service on or prior to the Closing Date; (ix) no Company Plan provides for an increase in benefits on or after the Closing Date; and (x) each Company Plan may be amended or terminated without obligation or liability (other than those obligations and liabilities for which specific assets have been set aside in a trust or other funding vehicle or reserved for on the Company's balance sheet). "Controlled Group" shall mean any organization which is a member of a controlled group of organizations within the meaning of Code sections 414(b), (c), (m) or (o). (d) (i) No Company Plan has incurred any "accumulated funding deficiency" as such term is defined in ERISA section 302 and Code section 412 (whether or not waived); (ii) no event or condition exists which could be deemed a reportable event within the meaning of ERISA section 4043 which could result in a liability to the Company or any member of its Controlled Group and no condition exists which could subject the Company or any member of its Controlled Group to a fine under ERISA section 4071; (iii) as of the Closing Date, the Company and each member of its Controlled Group have made all required premium payments when due to the Pension Benefit Guaranty Corporation (the "PBGC"); (iv) neither the Company nor any member of its Controlled Group is subject to any liability to the PBGC for any plan termination occurring on or prior to the Closing Date; (v) no amendment has occurred which has required or could require the Company or any member of its Controlled Group to provide 18 security pursuant to Code section 401(a)(29); and (vi) neither the Company nor any member of its Controlled Group has engaged in a transaction which could subject it to liability under ERISA section 4069. (e) With respect to each of the Company Plans which is not a multiemployer plan within the meaning of section 4001(a)(3) of ERISA but is subject to Title IV of ERISA, as of the Closing Date, the assets of each such Company Plan are at least equal in value to the present value of the accrued benefits (vested and unvested) of the participants in such Company Plan on a termination and projected basis, based on the actuarial methods and assumptions indicated in the most recent actuarial valuation reports. (f) With respect to any multiemployer plan (within the meaning of section 4001(a)(3) of ERISA) to which the Company or any member of its Controlled Group has any liability or contributes (or has at any time contributed or had an obligation to contribute): (i) the Company and each member of its Controlled Group has or will have, as of the Closing Date, made all contributions to each such multiemployer plan required by the terms of such multiemployer plan or any collective bargaining agreement; (ii) neither the Company nor any member of its Controlled Group has incurred any withdrawal liability under Title IV of ERISA or would be subject to such liability if, as of the Closing Date, the Company or any member of its Controlled Group were to engage in a complete withdrawal (as defined in ERISA section 4203) or partial withdrawal (as defined in ERISA section 4205) from any such multiemployer plan; (iii) no such multiemployer plan is in reorganization or insolvent (as those terms are defined in ERISA sections 4241 and 4245, respectively); and (iv) neither the Company nor any member of its Controlled Group has engaged in a transaction which could subject it to liability under ERISA section 4212(c). (g) (i) Each Company Plan which is intended to meet the requirements for tax favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code meets such requirements; and (ii) the Company has received a favorable determination from the Internal Revenue Service with respect to any trust intended to be qualified within the meaning of Code section 501(c)(9). (h) Schedule 2.21(h) sets forth, on a plan by plan basis, the present value of benefits payable presently or in the future to present or former employees of the Company under each unfunded Company Plan. (i) Except as set forth on Schedule 2.21(i), no Company Plan exists which could result in the payment to any Company employee of any money or other property or rights or accelerate or provide any other rights or benefits to any Company employee as a result of the transaction contemplated by this 19 Agreement, whether or not such payment would constitute a parachute payment within the meaning of Code section 280G. (j) The transaction contemplated by this Agreement does not constitute a change in the ownership or effective control of a corporation or the ownership of a substantial portion of the assets of a corporation for purposes of Code section 280G or the regulations thereunder. (k) Except as set forth in Schedule 2.21(k) attached hereto, (a) there are no open National Labor Relations Board claims, petitions, proceedings, charges, complaints or notices with respect to the Company, (b) the Company has no labor negotiations in process with any labor union or other labor organization, (c) no labor disputes, including, but not limited to, strikes, slowdowns, picketing or work stoppages or other labor difficulty exist or to the best of the Company's knowledge are threatened, with respect to any employees of the Company, (d) no grievance or arbitration proceeding arising out of or under any collective bargaining agreement relating to the employees of the Company is in process, and to the best knowledge of the Company, no claim thereunder exists, (e) the Company is not experiencing any labor disputes, including but not limited to strikes, slowdowns, picketing or work stoppages with respect to the employees of the Company and (f) no "plant closing" or "mass layoff" has been effectuated by the Company (in each case as defined in the Worker Adjustment and Retraining Notification Act (29 U.S.C. Section 2101, ET SEQ.), as amended). To the best knowledge of the Company, there are no efforts in process by unions to organize any employees or the Company who are not now represented by recognized collective bargaining agents. 2.22 PATENTS, ETC. All patents, trademarks, service-marks, trade names, permits, licenses, franchises or other rights (including industry certificates and approvals and including, without limitation, STC approvals) (collectively, "Intangible Rights") owned or held by the Company or any of its Subsidiaries that are material to the business of the Company or any of its Subsidiaries are described on Schedule 2.22 attached hereto. Except as described on Schedule 2.22, all such Intangible Rights are free and clear of any lien. Nothing has come to the attention of the Company to the effect that (i) any activity in operating the business of the Company or any of its Subsidiaries as presently conducted or as proposed to be conducted may infringe any patent, trademark, service-mark, trade name, copyright, permit, license, franchise or other right owned by any other person, (ii) there is pending or threatened any claim or litigation against or affecting the Company or any of its Subsidiaries contesting its right to carry on such activities or (iii) there is, or there is pending or proposed, any statute, law, rule, regulation, standard or code which would prevent or inhibit, or substantially reduce the projected revenues of, or otherwise adversely affect the business, condition (financial or otherwise), or operations of, the Company. 20 2.23 FULL DISCLOSURE. No representation or warranty made by the Company herein nor any certificate, schedule, or instrument furnished or to be furnished by the Company pursuant hereto or in connection herewith, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. 3. REPRESENTATIONS AND WARRANTIES OF NASSAU CAPITAL AND NAS Nassau Capital and NAS hereby jointly and severally represent and warrant to the Company as follows: 3.1 ORGANIZATION, STANDING, ETC. Nassau Capital is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. NAS is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. 3.2 PARTNERSHIP ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS. Each of Nassau Capital and NAS has all requisite power and authority to enter into this Agreement, the Shareholders Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. All action on the part of Nassau Capital and its partners and by NAS and its members, officers and managers necessary for the authorization, execution and delivery of this Agreement, the Shareholders Agreement and the Registration Rights Agreement by Nassau Capital and NAS, and the performance of all obligations of Nassau Capital and NAS hereunder and thereunder, has been taken. This Agreement has been, and the Shareholders Agreement and the Registration Rights Agreement when executed will be, duly executed and delivered by each of Nassau Capital and NAS and constitutes or when executed will constitute a valid and binding obligation of each of Nassau Capital and NAS, and is or when executed will be enforceable against each of Nassau Capital and NAS in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). 3.3 NO CONFLICT: GOVERNMENTAL APPROVALS AND NOTICES. Neither the execution and delivery of this Agreement, the Shareholders Agreement and the Registration Rights Agreement nor the consummation of the transactions contemplated hereby and thereby will (i) violate the partnership agreement of Nassau Capital, (ii) conflict with or constitute a violation of any law, statute, judgment, order, decree or regulation applicable or relating to Nassau Capital or NAS, or (iii) result in a breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of Nassau Capital or NAS pursuant to, any agreement or other instrument to which Nassau Capital or NAS is a party or by which either or any 21 portion of their properties, assets or rights are bound or affected which could reasonably be expected to have a material adverse effect on the transactions contemplated hereunder. No consent, authorization, approval, permit or order of, or notice to or filing with, any governmental authority is required in connection with Nassau Capital's and NAS's execution, delivery and performance of this Agreement, the Shareholders Agreement or the Registration Rights Agreement, except to the extent that the failure to obtain any such Governmental Consent could not reasonably be expected to have a material adverse effect on the transactions contemplated hereby. 4. REPRESENTATIONS AND WARRANTIES OF EIT [29] EIT HEREBY REPRESENTS AND WARRANTS to the Company as follows: 4.1 ORGANIZATION, STANDING, ETC. EIT is a [30] corporation duly organized, validly existing and in good standing under the laws of the United Kingdom.[31] 4.2 CORPORATE ACTS AND PROCEEDINGS: ENFORCEABILITY OF AGREEMENTS. [32] EIT [33] has all requisite corporate power and authority to enter into this Agreement, the Shareholders Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance by [34] EIT [35] of this Agreement, the Shareholders Agreement and the Registration Rights Agreement and the consummation by [36] IT of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action by [37] EIT [38], and no other corporate action on the part of EIT [39] is necessary for the execution, delivery and performance by [40] IT of this Agreement, the Shareholders Agreement or the Registration Rights Agreement and the consummation by [41] EIT of the transactions contemplated hereby or thereby. This Agreement has been, and the Shareholders Agreement and the Registration Rights Agreement when executed will be, duly executed and delivered by [42] EIT [43] and constitutes or when executed will constitute a valid and binding obligation [44] of EIT and [45] is or when executed will be enforceable against [46] EIT [47] in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). 4.3 NO CONFLICT: GOVERNMENTAL APPROVALS AND NOTICES. Neither the execution and delivery of this Agreement, the Shareholders Agreement and the Registration Rights Agreement nor the consummation of the transactions contemplated hereby and thereby will (i) violate the organizational documents of [48] EIT [49], (ii) conflict with or constitute a violation of any law, statute, judgment, order, decree or regulation applicable or relating to EIT [50], or (iii) result in a breach of, or 22 constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of EIT [51] pursuant to, any agreement or other instrument to which EIT [52] is a party or by which [53] any portion of [54] ITS properties, assets or rights are bound or affected which could reasonably be expected to have a material adverse effect on the transactions contemplated hereunder. No consent, authorization, approval, permit or order of, or notice to or filing with, any governmental authority is required in connection with EIT's [55] execution, delivery and performance of this Agreement, the Shareholders Agreement or the Registration Rights Agreement, except to the extent that the failure to obtain any such Governmental Consent could not reasonably be expected to have a material adverse effect on the transactions contemplated hereby. 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company as follows: 5.1 RESTRICTED SECURITIES. Each Investor understands that none of the Shares has been registered under the Securities Act of 1933, as amended (the "1933 Act"), or registered or qualified under any state securities laws, and, in addition to the restrictions on transfer set forth in the Shareholders Agreement, that they may not transfer the Shares in a manner inconsistent with their status as restricted securities. 5.2 INVESTMENT INTENT. The Securities are being purchased for each Investor's own account and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the 1933 Act. Each Investor understands that the Shares have not been registered under the 1933 Act by reason of their contemplated issuance in transactions exempt from the registration and prospectus delivery requirements of the 1933 Act pursuant to Section 4(2) thereof, that certificates representing the Shares shall bear the legend provided under the Shareholders Agreement (which legends shall be removed by the Company at the request of the Investors when appropriate) and that the reliance of the Company and others upon this exemption is predicated in part upon this representation and warranty by such Investor. None of the Investors was formed for the specific purpose of purchasing the Securities. 5.3 SOPHISTICATED INVESTOR. Each Investor has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Securities and of making an informed investment decision. Each Investor is capable of bearing the economic risk inherent in ownership of the Securities and retaining the Securities for an indefinite period. 5.4 ACCESS TO INFORMATION. Each Investor has been given the opportunity to ask questions of, and receive and 23 evaluate answers and information from, the Company concerning the Company and its Subsidiaries and the terms and conditions of its investment in the Securities, and been provided with, or had access to, such documents and other information as it deems necessary or useful in its evaluation of the merits and risks of an investment in the Securities. Each Investor has received such advice as to the federal and state tax consequences of the transactions contemplated by this Agreement from its own tax advisors as it deems necessary. 5.5 NO BROKERS OR FINDERS. No person, firm or entity has or will have, as a result of any act or omission by any Investor, any right, interest or valid claim against the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. 6. CONDITIONS PRECEDENT 6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS. The obligations of the Investors to consummate the purchase of the Securities is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company and any of its Subsidiaries contained herein, shall be true and correct in all material respects on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty shall be true and correct as of such date. Each Investor shall receive at Closing a certificate of the Secretary or Assistant Secretary of the Company, dated the Closing Date, certifying the foregoing. (b) NO MATERIAL ADVERSE CHANGE. There shall not have occurred or been threatened any event which could have a Material Adverse Effect. (c) SHAREHOLDERS AGREEMENT. The Company shall have entered into the Fourth Amended and Restated Shareholders Agreement with the Investors and certain of its other shareholders, substantially in the form of Exhibit E hereto (the "Shareholders Agreement"). (d) REGISTRATION RIGHTS AGREEMENT. The Company shall have entered into the Fourth Amended and Restated Registration Rights Agreement with the Investors and certain of its other shareholders, substantially in the form of Exhibit F hereto (the "Registration Rights Agreement"). (e) CERTIFICATE OF INCORPORATION. The Company shall have duly adopted and filed the Second Amended and Restated 24 Certificate of Incorporation, in the form of Exhibit A attached hereto. (f) ADS ASSET PURCHASE. Consummation of the ADS Asset Purchase shall occur simultaneously with the Closing on the terms and conditions set forth on Schedule 1.5 hereto and the Investors shall have received copies of the ADS Asset Purchase Documents, certified by the Secretary or Assistant Secretary of the Company as true and complete copies thereof together with evidence of authorization by the Company of each ADS Asset Purchase Document, and the transactions contemplated therein. (g) NO LITIGATION. No action, suit, investigation, arbitration, or administrative or governmental proceeding shall be pending, seeking to restrain, prohibit or invalidate the transactions contemplated by this Agreement, the Shareholders Agreement the Registration Rights Agreement or the ADS Asset Purchase Documents. (h) LEGAL OPINION. The Investors shall have received from Spolin & Silverman, counsel for the Company, an opinion in the form of Exhibit G hereto, addressed to the Investors. (i) APPROVALS AND CONSENTS. The Company shall have duly received all authorizations, waivers, consents, approvals, licenses, franchises, permits and certificates (collectively, the "Approvals") by or of all federal, state and local governmental authorities, and all material Approvals by or of all other persons, necessary or advisable for the issuance of the Shares, and all such Approvals shall be in full force and effect at the time of the Closing. The Company shall have delivered to the Investors an Officers' Certificate, dated the Closing Date, to such effect. (j) PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Securities shall not, to the knowledge of the Company, violate any applicable law or governmental regulation (including, without limitation, Section 5 of the 1933 Act) and shall not as a result of any act or omission by Company subject the Investors to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation. The Investors shall have received such certificates or other evidence of compliance as the Investors may request. (k) COMPLIANCE WITH SECURITIES LAWS. The issuance, offering and sale of the Securities under this Agreement shall have complied with all applicable requirements of federal and state securities laws, and the Investors shall have received such evidence of compliance as the Investors may request. 25 (1) INFORMATION AND MATERIALS. The Investors shall have received such other information, as the Investors or their counsel may reasonably request including, but not limited to, an environmental audit report in form and substance satisfactory to the Investors with respect to any environmental hazards, conditions, liabilities or potential liabilities to which the Company and its Subsidiaries may be subject. (m) AMENDMENTS, WAIVERS, CONSENTS, ETC. The Investors and their counsel shall have received evidence satisfactory to them that any and all amendments or waivers of, or consents to, any agreement, instrument, or document to which the Company is party or by which the Company is bound, necessary or advisable, in the sole opinion of the Investors, to effectuate the transactions contemplated hereby shall have been obtained by the Company, including, without limitation, (i) a waiver of Sections 2.10(c) and 9.24 of the Amended and Restated Credit Agreement, dated as of [56] September 18, 1996 among the Company, the Subsidiary Guarantors parties thereto, the Lenders parties thereto, and Internationale Nederlanden (U.S.) Capital Corporation, as Agent thereunder, [57](ii) a waiver of Sections 7K and 16F of the Securities Purchase Agreement, dated as of November 2, 1994, among the Company, EIT and Electra Associates, Inc. ("Electra") (the "Electra Securities Agreement"), and (iii) all necessary anti-dilution waivers, in each and every case on terms satisfactory to the Investors[58]. (n) COMPLIANCE WITH AGREEMENTS. The Company and each of its Subsidiaries shall be in compliance with all of the material covenants, terms and conditions of all loan documents, shareholder agreements and other material agreements of the Company (including all existing or proposed credit facilities, loan agreements and the like) which will remain or be outstanding immediately after the Closing Date, and such agreements shall permit the performance by the Company and its Subsidiaries of all of the obligations and transactions contemplated by this Agreement. The Company shall have delivered to the Investors an Officers' Certificate, dated the Closing Date, to such effect. 6.2 CONDITION PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the issuance and sale of the Securities is subject to the condition that the representations and warranties of each Investor contained herein shall be true and correct in all material respects on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty shall be true and correct as of such date. The Company shall receive at Closing a certificate from each of the General Partner 26 of Nassau Capital, the Manager of NAS, and the Secretary or Assistant Secretary of [59] EIT [60], each dated the Closing Date, certifying the foregoing. 7. AFFIRMATIVE COVENANTS The Company covenants that from and after the date of this Agreement through the Closing and thereafter (unless otherwise provided below): 7.1 FINANCIAL STATEMENTS AND OTHER REPORTS. For so long as the Company does not have any class of securities registered under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company will deliver, or cause to be delivered to each Investor: (a) within 30 days prior to the end of each fiscal year, but no earlier than 60 days prior to the end of such fiscal year, a budget (on a monthly basis) for the Company and its Subsidiaries for the following fiscal year (including consolidating and consolidated statements of income, cash flow and balance sheets prepared in accordance with GAAP), in form heretofore provided to the Investors; PROVIDED, HOWEVER, that notwithstanding the registration by the Company of any class of securities under the 1934 Act, the Company will deliver such budgets to each Investor if the Investors are not entitled at such time to a Designee on the Board (each, as defined in Section 5.2(a) hereof); (b) as soon as available and in any event within 30 days after the end of each month, consolidating and consolidated statements of income and cash flow of the Company and its Subsidiaries for such month and for the period from the beginning of the current fiscal year to the end of such month and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such period and, beginning in fiscal year 1996, setting forth, in each case, in comparative form, figures for the corresponding month and period in the preceding fiscal year and the budget for such month and for the period from the beginning of the current fiscal year to the end of such month, all in reasonable detail and reasonably satisfactory in form and scope to the Investors and certified by an authorized financial officer of the Company as fairly presenting in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP; (c) as soon as practicable and in any event within 45 days after the end of each fiscal quarter of the Company, consolidating and consolidated statements of income and cash flow of the Company and its Subsidiaries for such quarter and for the period from the beginning of the current fiscal year to the end of such quarter and a consolidated balance 27 sheet of the Company and its Subsidiaries as at the end of such quarter, setting forth, in each case, in comparative form, figures for the corresponding quarter in the preceding fiscal year and the budget for such quarter, all in reasonable detail and satisfactory in form and scope to the Investors, and certified by an authorized financial officer of the Company as fairly presenting in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP; (d) as soon as available and in any event within [61] 90 days after the end of each fiscal year, consolidating and consolidated statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, and the related consolidating and consolidated balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, setting forth, in each case, in comparative form, corresponding consolidated and consolidating figures from the preceding fiscal year, all in reasonable detail and reasonably satisfactory in form and scope to the Investors, and accompanied (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing (which shall be generally recognized as one of the "Big Six" independent public accounting firms), which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of an authorized financial officer of the Company, which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with GAAP, consistently applied, as at the end of, and for, such fiscal year; (e) promptly upon transmission thereof to the shareholders of the Company generally or to any other security holder of the Company, including, without limitation, any holder of Debt, copies of all financial statements, financial analyses, notices, certificates (including, without limitation, the compliance certificate to be furnished under the Credit Agreement, dated November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank ("Provident") and Internationale Nederlanden (U.S.) Capital Corporation ("ING"), as the same has been, or may be, amended, modified or supplemented (the "Credit 28 Agreement")), annual reports and proxy statements so transmitted; (f) promptly upon receipt thereof, a copy of each other report submitted to the Company or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit of the books of the Company or any of its Subsidiaries made by such accountants, or any management letters or similar document submitted to the Company or any of its Subsidiaries by such accountants; (g) promptly upon any material revision to the budgets referred to in paragraph (a) above, such monthly budgets, as revised; (h) promptly upon any officer of the Company obtaining knowledge of any event of default under any credit agreement, loan agreement or indenture that the Company is party to; and (i) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as such Investor may reasonably request. 7.2 BOARD MEMBER; ATTENDANCE AT BOARD MEETINGS. (a) For so long as the Investors hold not less than 5% of the Common Equivalent Shares (as defined in the Shareholders Agreement), at the Investors' request, the Company will cause one person designated by the Investors (the "Designee") to be included in any list of persons nominated by management of the Company for election as members of the Board of Directors of the Company (the "Board") and will take all actions reasonably within its power to cause the Designee to be elected a member of the Board. The Designee, as a director, will have the right to be a member of the Audit Committee and the Compensation Committee of the Board, or such other committees of the Board performing the functions typically performed by such committees. (b) The Company will reimburse such director for all costs and expenses (including travel expenses) incurred in connection with such director's attendance at meetings of the Board or any committee of the Board upon which such director serves. The Company will pay such director annual fees and fees for attending Board or committee meetings, if any such fees are paid to directors. 7.3 RESERVATION OF SHARES. The Company will reserve and keep reserved at all times sufficient shares of its Common Stock for issuance upon conversion of the Securities and, upon such conversion, the Company will promptly issue and deliver the shares of Common Stock required to be delivered, and such shares, when issued and delivered, will be validly issued, fully paid and nonassessable. 29 7.4 USE OF PROCEEDS. The Company will use the proceeds from the sale and issuance of the Securities for the purpose described in Section 1.5 hereof. 8. INDEMNIFICATION 8.1 INDEMNIFICATION. (a) From and after the Closing, the Company shall indemnify and save harmless the Investors and their respective officers, directors, members, stockholders, partners and employees (as applicable) (the "Investor Indemnitees") from and against any and all loss, cost, damage or expense (including court costs and reasonable attorneys' fees) whatsoever asserted against or incurred by such Investor Indemnitee resulting from or arising out of any breach of any representation, warranty or covenant of the Company contained in this Agreement. (b) From and after the Closing, each Investor shall severally indemnify and save harmless the Company and its officers, directors, stockholders and employees (the "Company Indemnitees") from and against any and all loss, cost, damage or expense (including court costs and reasonable attorneys' fees) whatsoever asserted against or incurred by such Company Indemnitee resulting from or arising out of any breach of any representation or warranty made by such Investor in this Agreement. 8.2 CERTAIN PROCEDURES. In the event that a claim is made by a third party against any Investor Indemnitee or Company Indemnitee (the "Claimant") which, if successful, would entitle such Claimant to indemnification hereunder, or any Claimant desires to make a claim against any party to this Agreement (the "Indemnitor") under this Section 8, the Claimant shall give prompt notice to the Indemnitor of any actions, suits, proceedings and demands at any time instituted against or made upon Claimant and for which the Claimant claims a right to indemnification hereunder (including the amount and circumstances surrounding any claim); PROVIDED that the failure of a Claimant to give notice as provided in this Section 8.2 shall not relieve the Indemnitor of its obligations hereunder, except to the extent that the Indemnitor is actually prejudiced by such failure to give notice. The Indemnitor shall within 30 days after receipt of notice undertake to defend, adjust, compromise or settle the action, suit, proceeding or demand on which such notice is based, in the name of the Claimant or otherwise as the Indemnitor shall elect. Notwithstanding the foregoing, the Claimant shall have the right to defend, adjust, compromise or settle any action, suit, proceeding or demand on its own behalf and to be indemnified therefor if (a) the Indemnitor does not provide the undertaking referred to in the previous sentence, (b) the Indemnitor has not employed counsel reasonably satisfactory to the Claimant, or (c) in the sole discretion of the Claimant, there is a conflict or potential conflict of interest between the 30 Claimant and the Indemnitor or a legal defense available to it which differs from or is additional to those available to Indemnitor, in such action, suit or proceeding. The Indemnitor shall not, except with the consent of the Claimant, enter into any settlement that does not include as a term thereof an unconditional release of the Claimant from all liability with respect to the applicable claim. 9. WARRANTS 9.1 TERM; EXERCISE. Subject to the terms and conditions contained in this Agreement and in the Warrants, the Warrants are exercisable, in the manner set forth in the Warrants, in whole or in part, at any time and from time to time during the period commencing on the Effective Date (as defined in each such Warrant) and ending at 5:00 p.m. New York City time on December 31, 2006, (the "Expiration Date"), and shall be void thereafter. 9.2 SERIES OF WARRANTS AND TRIGGERING EVENT. (a) At the Closing, the Investors will receive Series H Warrants and Series I Warrants, in each case exercisable into such number of shares of Common Stock as determined pursuant to Section 2.1 of such Warrant. The Series H Warrants and Series I Warrants will be essentially identical in all respects, including in the respect that the occurrence of either of a Registered Public Offering (as defined below) or a Private Financing (as defined below) will determine the Warrant Value (as defined in each of the Series H Warrants and the Series I Warrants), except that (i) the Series I Warrants shall be terminated upon the repayment in full of the Note, PROVIDED that a Registered Public Offering shall have occurred prior to such repayment and (ii) the aggregate amount of the accrued and unpaid interest on the Note will be included in the calculation of the Warrant Value of the Series I Warrant. (b) For purposes hereof, the following terms shall have the following meanings: "Fully Diluted" shall mean, at any point in time, the number of common shares outstanding, increased by all common equivalent shares (stock options, warrants, convertible securities and any other security or instrument, whether in or out of the money, that could result in additional common shares being issued at any time in the future) at the time outstanding. "Private Financing" shall mean any disposition by the Company, whether by sale or indirect sale, issuance or other transfer, of any capital stock of the Company, or any warrant, security or other instrument convertible into capital stock of the Company, other than pursuant to a Registered Public Offering. 31 "Registered Public Offering" shall mean the closing of an underwritten public offering for shares of Common Stock of the Company pursuant to a registration statement under the 1933 Act. 9.3 PUT. (a)(i) If a Registered Public Offering shall not have occurred by December 31, 2000, then, the Investors or other holder of the Warrants may, at any time thereafter, by giving written notice to the Company (the "Put Notice"), require the Company to repurchase (the "Put") all or any portion of the Warrants held by the Investors or other holder of the Warrants for an amount equal to the Put Amount (as defined in the Electra Securities Agreement) and corresponding to that number of shares of Common Stock then issuable upon exercise of the Warrants designated in the Put Notice. The Company shall pay to the Investors, subject to Section 9.3(a)(iii) hereof such Put Amount within 30 days of the date of the Put, or, if sooner, at the same time that ING, Provident, Banc One or Electra is required to be paid pursuant to the terms of the ING Warrant, the Provident Warrant, the Banc One Warrant and the Electra Warrants (each as defined in the Electra Securities Agreement), respectively, and shall execute and deliver to the Investors a promissory note evidencing such Put Amount; any unpaid balance of the Put Amount shall bear interest, which interest shall be paid together with any payment of the Put Amount, at a rate of 14% per annum. (ii) Immediately upon receipt of (A) a Put Notice or (B) notice, whether prior to or after December 31, 2000, from the holders of any of the ING Warrant, the Provident Warrant, the Banc One Warrant or the Electra Warrants (such holders being referred to herein collectively as the "Put Holders") that the Investors or such Put Holders intend to exercise put rights in connection with the repurchase of any of their warrants by the Company, the Company shall, before repurchasing any such warrants, give written notice thereof to the Investors and/or all other Put Holders, as the case may be. For a period of twenty (20) days following receipt of such notice, the Investors and each Put Holder shall be entitled, by written notice to the Company, the Investors and/or each Put Holder, as the case may be, to elect to require the Company to repurchase for cash its pro rata share (on the basis of the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Investors and each such Put Holder) of the warrants held by the Investors and each such Put Holder. If, at the expiration of such twenty-day period the Investors or any Put Holders have not elected to have the Company repurchase their warrants, the Company shall repurchase only those warrants for which notice has been received. (iii) If the Company shall not have funds legally available in the amount necessary to repurchase all warrants of the Investors and Put Holders with respect to which notice has been received, then such warrants shall be repurchased by the Company (A) first, on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of 32 all of the warrants held the Put Holders, and (B) second, to the extent of funds legally available therefor, on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Investors. Any Put not satisfied in full in cash shall remain an obligation of the Company and shall be evidenced by a promissory note due within 366 days and bearing interest at a rate of 14% per annum, which interest shall be paid together with the Put Amount. 9.4 ANTIDILUTION PROVISIONS. The percentage of Common Stock for which the Warrants may be exercised shall be adjusted as set forth in the Warrants in order to preserve the relative position of the holder of the Warrants vis-a-vis the percentage of the issued and outstanding shares of Common Stock which such holder may acquire upon exercise of the Warrants. 9.5 REGISTRATION. Pursuant to the terms of the Registration Rights Agreement, the Investors shall have and be entitled to (i) three demand and (ii) unlimited piggyback registrations for shares of Common Stock issuable upon exercise of the Warrants. The Investors' demand registration rights will have preference over other demand registration rights granted by the Company (with the exception of any such right granted to (A) Electra pursuant to the Electra Securities Agreement, with which the right of the Investors hereunder shall rank pari passu; PROVIDED that Electra shall have amended the Electra Securities Agreement to provide that such right of Electra shall rank pari passu with that of the Investors hereunder and (B) Nassau pursuant to the Securities Purchase Agreement dated as of February 20, 1996, with which the right of the Investors hereunder shall rank pari passu; PROVIDED that Nassau shall have amended such agreement to provide that such right of Nassau shall rank pari passu with that of the Investors hereunder), and the Investors' piggyback registration rights will be pro rata with any other holders of capital stock of the Company participating in such registration, to the extent and as provided in the Registration Rights Agreement. 9.6 VOTING. To the extent permitted by applicable law, the Warrants shall entitle the holders thereof to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of the Warrants on any matters upon which the holders of Common Stock are entitled to vote. 10. MISCELLANEOUS 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made herein shall survive the Closing (i) with respect to the representations and warranties of the Company set forth in Section 2.20, until the closing of an underwritten public offering, (ii) with respect to the representations and warranties of the Company set forth in 33 Section 2.14, until three months after the expiration of the applicable statute of limitations with respect to the subject matter thereof, and (iii) with respect to all other representations and warranties of any party hereunder, for a period of two (2) years after the Closing Date. 10.2 COSTS AND EXPENSES; TRANSFER TAXES. Whether or not the transactions contemplated by this Agreement are consummated, (a) the Company shall pay all fees and expenses incurred by, or on behalf of, it and (b) the Company shall promptly reimburse the Investors for their reasonable out-of-pocket expenses incurred in connection with this Agreement and the transactions contemplated hereby, including without limitation, the reasonable fees and expenses of their legal counsel, accountants and advisors. The Company shall pay all transfer taxes and charges attributable to the transfer of the Securities to the Investors. 10.3 CONFIDENTIALITY; PRESS RELEASES. (a) Each Investor severally agrees that all information and documents gained by such Investor and its directors, officers, employees, agents, representatives, consultants or affiliates pursuant to such Investor's investigations of the Company and its Subsidiaries have been and shall be kept confidential by such Investor and will not be used by such Investor or its directors, officers, employees, agents, representatives, consultants or affiliates for any purpose other than in connection with such Investor's investment in the Company or as required by law. (b) The parties hereto agree that no party shall issue or cause publication of any press release or other announcement or public communication with respect to this Agreement, the Shareholders Agreement, the Registration Rights Agreement or the transactions contemplated hereby or thereby without the consent of the others, which consent shall not unreasonably be withheld; provided that nothing herein shall prohibit any party from issuing or causing publication of any such press release, announcement or public communication to the extent that such action is required by law. 10.4 PARTIES IN INTEREST. All the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by, only the parties hereto; PROVIDED, HOWEVER, that the parties hereto may enforce the provisions of Section 8 hereof on behalf of their respective Investor Indemnitees and Company Indemnitees. In no event may either party assign either its rights or obligations hereunder without the written agreement of the other party. 10.5 EXHIBITS AND SCHEDULES. The Exhibits and Schedules to this Agreement are part of the Agreement and shall 34 be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth in full herein. 10.6 HEADINGS. The headings of the Sections of this Agreement have been inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. 10.7 AMENDMENTS, WAIVERS, ETC. Neither this Agreement nor any term hereof may be amended except by an instrument in writing which refers to this Agreement and is executed by the Company and each Investor whose rights are affected thereby, and neither this Agreement nor any term hereof may be released, waived or discharged in any manner except by an instrument in writing which refers to this Agreement and is executed by the party against which such release, waiver or discharge is asserted. 10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE STATE OF NEW YORK. 10.9 NOTICES. Any notice, demand or request required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed to have been duly given on the earlier of (a) the date actually received by the party in question, by whatever means and however addressed, or (b) the date received if sent by telecopy, or on the date of personal delivery if delivered by hand, or on the date signed for if sent by an overnight delivery service, to the following addresses, or to such other address as any party may request by notifying the other parties hereto: (a) If to the Company: DeCrane Aircraft Holdings, Inc. Attention: President 2201 Rosecrans Avenue El Segundo, California 90245 Telephone: (310) 536-0444 Telecopy: (310) 536-0257 DeCrane Aircraft Holdings, Inc. Attention: Chief Executive Officer 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Telephone: (216) 668-3061 Telecopy: (216) 668-2518 35 with a copy to: Spolin & Silverman Attention: Stephen A. Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Telecopy: (310) 576-1221 Telephone: (310) 576-4844 (b) If to Nassau Capital: c/o Nassau Capital L.L.C. Attn: Jonathan Sweemer 22 Chambers Street Princeton, New Jersey 08542 Telephone: (609) 924-3555 Telecopy: (609) 924-8887 with a copy to: Simpson Thacher & Bartlett Attention: George R. Krouse, Jr., Esq. 425 Lexington Avenue New York, New York 10017 Telephone: (212) 455-2000 Telecopy: (212) 455-2502 (b) If to [62] EIT: c/o Electra Associates, Inc. Attn: [63] SCOTT D. STEELE 70 East 55th Street New York, New York 10022 Telephone: (212) [64] 319-0081 Telecopy: (212) 319-3069 With a copy to: [65] WILKIE FARR & GALLAGHER [66] ATTN: PETER J. HANLON ONE CITICORP CENTER 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 Telephone: (212) 935-8000 Telecopy: (212) 821-8111 The failure of any party to deliver any notice to any of the above persons specified to receive copies of notices, demands or requests shall not limit the effectiveness of any notice given in accordance herewith to the Company or any Investor. The foregoing shall not preclude the effectiveness of actual written notice actually received by any party delivered by any means other than those specified above. 36 10.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.11 SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances will not be affected thereby and may be enforced to the greatest extent permitted by law. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------- Name: Title: NASSAU CAPITAL PARTNERS L.P. By: NASSAU CAPITAL L.L.C. General Partner By: -------------------------------- Name: Title: NAS PARTNERS I L.L.C. By: ------------------------------------- Name: Title: ELECTRA INVESTMENT TRUST P.L.C. By: ------------------------------------- Name: Title: DELETIONS [1] __ [2] , [3] , and Electra Associates, Inc., a Delaware corporation, located at 70 East 55th Street, New York, NY ("Electra Associates" and, collectively with EIT, "Electra") (Nassau and Electra [4] Electra [5] Electra [6] Electra [7] Electra [8] 115,385 [9] 57,692 [10] Electra [11] Electra [12] Electra [13] Capital [14] Electra [15] Electra [16] Electra [17] 115,384.67 [18] 57,692.33 [19] Electra [20] Electra [21] Electra [22] Electra [23] Electra [24] [ [25] - which entity?] -iv- [26] Electra [27] 8,000,000 [28] provide information with respect to all amounts due and not yet paid by ASI, and the magnitude of any planned write-off associated with ASI [29] AND ELECTRA ASSOCIATES EIT and Electra Associates hereby jointly and severally represent and warrant [30] limited liability company [31] Electra Associates is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. [32] Each of [33] and Electra Associates [34] each of [35] and Electra Associates [36] each of them [37] each of [38] and Electra [39] and Electra Associates [40] them [41] them [42] each of [43] and Electra Associates [44] of each [45] Electra Associates and [46] each of [47] and Electra Associates [48] either [49] or Electra Associates -v- [50] or Electra Associates [51] or Electra Associates [52] or Electra Associates [53] either or [54] their [55] or Electra Associates' [56] November 2, 1994, [57] and [58] [new credit agreement; any others?] [59] each of [60] and Electra [61] 120 [62] Electra [63] ______________________ [64] ____________ [65] [NAME] [66] [ADDRESS] [67] ELECTRA ASSOCIATES, INC. By: -------------------------------- Name: Title: [68] and ELECTRA ASSOCIATES, INC. [69] __ [70] 4 [71] 11 [72] 20 -vi- [73] AND ELECTRA ASSOCIATES [74] 22 [75] 23 [76] 23 [77] 29 [78] 29 [79] 33 [80] 33 [81] 34 -vii- EX-10.23 23 EXHIBIT 10.23 EXHIBIT 10.23 SECURITIES PURCHASE AGREEMENT, DATED FEBRUARY 20, 1996 AMONG REGISTRANT, NASSAU CAPITAL PARTNERS L.P. AND NAS PARTNERS I L.L.C. EXECUTION COPY SECURITIES PURCHASE AGREEMENT among DECRANE AIRCRAFT HOLDINGS, INC. NASSAU CAPITAL PARTNERS L.P. and NAS PARTNERS I L.L.C. dated as of February 20, 1996 TABLE OF CONTENTS Page 1. TRANSACTIONS AND CLOSING. . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 SALE AND PURCHASE OF THE SECURITIES . . . . . . . . . . . . . 2 1.2 PURCHASE PRICE FOR SECURITIES . . . . . . . . . . . . . . . . 2 1.3 PLACEMENT FEE . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 3 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . 3 2.1 ORGANIZATION, STANDING, ETC. . . . . . . . . . . . . . . . . 3 2.2 CORPORATE ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS 3 2.3 DUE AUTHORIZATION, ISSUANCE, ETC . . . . . . . . . . . . . . 3 2.4 CERTIFICATE OF INCORPORATION AND CODE OF REGULATIONS . . . . 4 2.5 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . 4 2.6 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES. . . . . . . 5 2.7 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . 6 2.8 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 6 2.9 CHANGES, DIVIDENDS, ETC. . . . . . . . . . . . . . . . . . . 7 2.10 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . 7 2.11 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.12 PRODUCTS LIABILITY . . . . . . . . . . . . . . . . . . . . . 8 2.13 NO BROKERS OR FINDERS. . . . . . . . . . . . . . . . . . . . 9 2.14 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.15 AFFILIATE TRANSACTIONS; NO SEPARATE CONSIDERATION. . . . . . 9 2.16 MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . 9 2.17 ABSENCE OF UNDISCLOSED LIABILITIES . . . . . . . . . . . . . 10 2.18 OUTSTANDING DEBT . . . . . . . . . . . . . . . . . . . . . . 10 2.19 TITLE TO AND CONDITION OF PROPERTY . . . . . . . . . . . . . 11 2.20 ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . 11 2.21 EMPLOYEE PLANS . . . . . . . . . . . . . . . . . . . . . . . 15 2.22 PATENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . 18 2.23 FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . 19 3. REPRESENTATIONS AND WARRANTIES OF NASSAU CAPITAL AND NAS. . . . . . . . 19 3.1 ORGANIZATION, STANDING, ETC. . . . . . . . . . . . . . . . . 19 3.2 PARTNERSHIP ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 19 3.3 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES. . . . . . . 20 3.4 RESTRICTED SECURITIES. . . . . . . . . . . . . . . . . . . . 20 3.5 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . . . 20 3.6 SOPHISTICATED INVESTOR . . . . . . . . . . . . . . . . . . . 20 3.7 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . 20 3.8 NO BROKERS OR FINDERS. . . . . . . . . . . . . . . . . . . . 21 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS . . 21 - i - PAGE 4.2 CONDITION PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. . . . 23 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1 FINANCIAL STATEMENTS AND OTHER REPORTS . . . . . . . . . . . 24 5.2 BOARD MEMBER; ATTENDANCE AT BOARD MEETINGS . . . . . . . . . 26 5.3 RESERVATION OF SHARES. . . . . . . . . . . . . . . . . . . . 26 5.4 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . 26 6. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.1 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 27 6.2 CERTAIN PROCEDURES . . . . . . . . . . . . . . . . . . . . . 27 7. WARRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.1 TERM; EXERCISE . . . . . . . . . . . . . . . . . . . . . . . 28 7.2 SERIES OF WARRANTS AND TRIGGERING EVENT. . . . . . . . . . . 28 7.3 PUT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 7.4 ANTIDILUTION PROVISIONS. . . . . . . . . . . . . . . . . . . 31 7.5 REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 31 7.6 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . 32 8.2 COSTS AND EXPENSES; TRANSFER TAXES . . . . . . . . . . . . . 32 8.3 CONFIDENTIALITY; PRESS RELEASES. . . . . . . . . . . . . . . 32 8.4 PARTIES IN INTEREST. . . . . . . . . . . . . . . . . . . . . 33 8.5 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . . 33 8.6 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.7 AMENDMENTS, WAIVERS, ETC . . . . . . . . . . . . . . . . . . 33 8.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . 33 8.9 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . 35 8.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 35 -ii- EXHIBITS Exhibit A Certificate of Incorporation Exhibit B Warrant Exhibit C Shareholders Agreement Exhibit D Registration Rights Agreement Exhibit E Form of Opinion of Spolin & Silverman SCHEDULES Schedule 1.5 Cory Repurchase Documents 2.4(a) Certificate of Incorporation of the Company 2.4(b) Code of Regulations of the Company 2.4(c) Resolutions 2.5(a) Capital Stock - Company 2.5(b) Subscriptions, Options, Warrants, etc. - Company 2.5(c) Voting Trusts, Proxies, etc. - Company 2.5(d) Registration Rights - Company 2.6 Consents, Authorization, Approvals, etc. 2.7(a) Subsidiaries; Capital Stock 2.7(b) Subscriptions, Options, Warrants, etc. - Subsidiaries 2.7(c) Voting Trust, Proxies, etc. - Subsidiaries 2.8 Financial Statements 2.9 Changes, Dividends, etc. 2.10 Compliance, Citations, etc. 2.11 Litigation 2.15 Affiliate Transactions; No Separate Consideration 2.16 Material Conflicts 2.17 Undisclosed Liabilities 2.18 Outstanding Debt 2.19 Real Property 2.20 Environmental Matters 2.21(a) Employee Benefit Plans 2.21(h) Present Value of Benefit Payable Presently 2.21(i) Payments, etc. 2.21(k) Labor Matters 2.22 Intangible Rights -iii- EXECUTION COPY SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of February 20, 1996 (this "Agreement"), is by and among DeCrane Aircraft Holdings, Inc., an Ohio corporation (the "Company"), Nassau Capital Partners L.P., a Delaware limited partnership located at 22 Chambers Street, Princeton, New Jersey ("Nassau Capital"), and NAS Partners I L.L.C., a Delaware limited liability company also located at 22 Chambers Street, Princeton, New Jersey ("NAS") (Nassau Capital and NAS are hereinafter sometimes referred to collectively as the "Investors", or individually as an "Investor"). W I T N E S S E T H: WHEREAS, the Company currently is authorized to issue 8,000,000 shares of Common Stock, without par value (the "Common Stock"), 167,702 shares of Series A Convertible Preferred Stock, without par value (the "Series A Stock"), 1,636,316 shares of Series B Convertible Preferred Stock, without par value (the "Series B Stock"), and 3,000,000 shares of Series C Convertible Preferred Stock, without par value (the "Series C Stock") having the rights set forth in the Certificate of Incorporation of the Company, included as Schedule 2.4(a) hereto (the "Certificate of Incorporation"); WHEREAS, the Company desires to amend the Certificate of Incorporation to authorize 2,000,000 shares of Series D Convertible Preferred Stock, without par value (the "Series D Stock," and, together with the Series A Stock, Series B Stock and Series C Stock, the "Preferred Stock"), having the rights set forth in the Amended and Restated Certificate of Incorporation of the Company attached as Exhibit A hereto; WHEREAS, at the Closing (as hereinafter defined), the Company desires to sell 1,989,114 shares of newly-issued Series D Stock to Nassau Capital and 10,886 shares of newly-issued Series D Stock to NAS (collectively, the "Shares"), and each of Nassau Capital and NAS wishes to acquire its respective Shares, all in accordance with the terms and conditions of this Agreement; WHEREAS, the Company desires to authorize the issuance of certain warrants, substantially in the form of Exhibit B hereto (together with any such warrants which may be issued pursuant to any provision hereof or, any provision contained in the warrants and any such warrants which may be issued in addition to or in substitution or exchange therefor, the "Warrants"; and, together with the Shares, the "Securities"), to purchase for a price of $0.01 per share certain shares of the Company's Common Stock; and WHEREAS, at the closing, the Company desires to sell Warrants, initially equal to an aggregate of 682,580 shares of 2 Common Stock, subject to adjustment as set forth therein, to Nassau Capital and Warrants, initially equal to an aggregate of 3,735 shares of Common Stock, subject to adjustment as set forth therein, to NAS, and each of Nassau Capital and NAS wishes to acquire its respective Warrant, all in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the Company and the Investors, intending to be legally bound, hereby agree as follows: 1. TRANSACTIONS AND CLOSING 1.1 SALE AND PURCHASE OF THE SECURITIES. Upon the terms hereof and subject to the conditions set forth herein, the Company shall sell to Nassau Capital and NAS, and Nassau Capital and NAS shall purchase from the Company, at the Closing, the Securities. 1.2 PURCHASE PRICE FOR SECURITIES. The aggregate purchase price to be paid by the Investors to the Company for the Securities shall be $6,500,000 (the "Subscription Price"). 1.3 PLACEMENT FEE. Upon the terms and subject to the conditions set forth herein, on the Closing Date (as hereinafter defined), the Company will pay to Nassau Capital L.L.C. (an affiliate of Nassau Capital), by wire transfer, a placement fee equal to 1% of the Subscription Price. 1.4 CLOSING. The closing of the purchase and sale of the Securities (the "Closing") will take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, two Business Days after the date on which all the conditions specified in Section 4 hereof shall have been satisfied, or on such other date or at such other place as the Investors and the Company may agree (the "Closing Date"). The Company will give the Investors five days' notice of the Closing Date and the time of Closing. At the Closing, the Company will deliver to the Investors (a) the Shares, registered in the Investors' names and in such denominations as the Investors shall request and (b) the Warrants, registered in the Investors' names or those of the Investors' nominees, against payment of the Subscription Price by transfer in lawful money of the United States of America in immediately available funds to such bank and account as the Company may direct in writing. If at the Closing the Company shall fail to (x) tender to the Investors any of the Shares (y) tender to the Investors any of the Warrants or (z) have satisfied any of the Closing conditions specified herein, or if such closing conditions shall not have been waived by the Investors, the Investors shall, at the Investors' election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights the Investors may have by reason of such failure. 3 1.5 USE OF PROCEEDS. The Company shall use the proceeds which it receives from the sale of the Securities hereunder solely for the consummation of the repurchase by the Company of the 25% minority interest in Cory Components, Inc., a subsidiary of the Company (the "Cory Repurchase") pursuant to the terms and conditions of the Cory Repurchase Documents, set forth on Schedule 1.5 hereto, and for the payment of certain fees and expenses incurred by the Company in connection therewith. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Investors as follows: 2.1 ORGANIZATION, STANDING, ETC. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and each Subsidiary (as hereinafter defined) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Company and each Subsidiary have all requisite corporate power and authority to own and operate its material properties and assets and to carry on its business as now conducted. The Company and each Subsidiary are duly qualified to do business as foreign corporations and are in good standing in the State of Ohio and in each other jurisdiction in which the character or location of the properties and assets owned or operated by it or the nature of the material business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified could not reasonably be expected to have a material adverse effect on business, assets, liabilities, results of operations, financial condition or prospects of the Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect"). 2.2 CORPORATE ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS. (a) The Company has all requisite corporate power and authority to enter into this Agreement, the Shareholders Agreement (as hereinafter defined), the Registration Rights Agreement (as hereinafter defined) and such documents necessary or advisable to consummate the Cory Repurchase (the "Cory Repurchase Documents") and to perform its obligations contemplated hereunder and thereunder. (b) Within a reasonable period of time after the Closing Date, the Company will deliver to Nassau Capital a set of closing binders containing true and complete copies of the final, executed Cory Repurchase Documents. (c) All corporate action on the part of the Company and its subsidiaries, officers, directors and stockholders necessary for the authorization, execution and delivery by the Company of this Agreement, the Shareholders Agreement, the Registration Rights Agreement and the Cory Repurchase Documents, 4 the performance of all obligations of the Company hereunder and thereunder (including the authorization, issuance, sale and delivery of the Securities to be issued hereunder), has been taken. (d) This Agreement has been, and the Shareholders Agreement, the Registration Rights Agreement and the Cory Repurchase Documents when executed and delivered by the parties thereto will be, duly executed and delivered by authorized officers of the Company and constitutes, or when executed and delivered by the parties thereto will constitute, a valid and binding obligation of the Company and is, or when executed and delivered by the parties thereto will be, enforceable against the Company in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). 2.3 DUE AUTHORIZATION. ISSUANCE, ETC. The Securities being issued hereunder, when issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized and validly issued, fully paid and nonassessable. 2.4 CERTIFICATE OF INCORPORATION AND CODE OF REGULATIONS. Schedule 2.4(a) hereto is a complete and correct copy of the Certificate of Incorporation as currently in effect and on file with the Secretary of State of the State of Ohio. Schedule 2.4(b) hereto is a complete and correct copy of the Code of Regulations of the Company (the "Code of Regulations") as currently in effect. Schedule 2.4(c) hereto contains complete and correct copies of all resolutions of the Board of Directors of the Company, authorizing the execution, delivery and performance of this Agreement, the Shareholders Agreement, the Registration Rights Agreement and the Cory Repurchase Documents and the performance of all the obligations of the Company contemplated hereunder and thereunder and such resolutions are currently in full force and effect. 2.5 CAPITALIZATION. (a). The authorized capital stock of the Company consists of 8,000,000 shares of Common Stock and 167,702 shares of Series A Stock, 1,636,316 shares of Series B Stock and 3,000,000 shares of Series C Stock. The rights, preferences, convertibility and other characteristics of the shares of Common Stock and Preferred Stock (not including the Series D Stock) of the Company are as set forth in the Certificate of Incorporation and the Code of Regulations, subject to the terms of the Second Amended and Restated Shareholders Agreement. As of the date of this Agreement, 301,840 shares of Common Stock have been issued and are outstanding, and the beneficial and record ownership of such shares is as set forth on Schedule 2.5(a). All of such shares of Common Stock have been duly authorized and validly issued and are fully paid and 5 non assessable. As of the date of this Agreement, 167,702 shares of Series A Stock, 1,583,537 shares of Series B Stock and 2,346,471 shares of Series C Stock have been issued and are outstanding and the beneficial and record ownership of each such series is as set forth on Schedule 2.5(a). All of such shares of Preferred Stock (not including the Series D Stock) have been duly authorized and validly issued and are fully paid and non assessable. (b) Except as set forth on Schedule 2.5(b) and except for the transactions contemplated by this Agreement, the Shareholders Agreement and the Registration Rights Agreement, there are no outstanding subscriptions, options, warrants, calls, contracts, preemptive rights, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatsoever under which the Company is or may be obligated to issue or acquire its capital stock. (c) Except as set forth on Schedule 2.5(c), the Company is not a party to, and the Company has no knowledge of any, voting trusts, proxies or any other agreements or understandings with respect to the voting of any capital stock of the Company. (d) Except as set forth in Schedule 2.5(d), the Company has not granted or agreed to grant any rights relating to the registration of its securities under applicable federal and state securities laws, including piggyback rights. (e) Except as set forth on Schedule 2.5(b), the consummation of the transactions contemplated by this Agreement will not trigger the anti-dilution provisions or other price adjustment mechanisms of any outstanding subscriptions, options, warrants, calls, contracts, preemptive rights, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatsoever under which the Company is or may be obligated to issue or acquire its capital stock. 2.6 NO CONFLICT: GOVERNMENTAL APPROVALS AND NOTICES. The execution and delivery of this Agreement as of the date hereof, and the Shareholders Agreement, the Registration Rights Agreement and the Cory Repurchase Documents, as of the Closing Date (collectively, the "Closing Documents"), and the consummation of the transactions contemplated by any of the Closing Documents will not (i) violate the Certificate of Incorporation or Code of Regulations of the Company or any Subsidiary, (ii) conflict with or constitute a violation of any law, statute, judgment, order, decree or regulation applicable or relating to the Company or any of its Subsidiaries or to which any of its assets or properties is subject, or (iii) result in a breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of the Company or any Subsidiary pursuant to, any agreement or 6 other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any portion of their respective properties, assets or rights are bound or affected, except for those breaches, defaults, liens and encumbrances which in the aggregate could not reasonably be expected to have a Material Adverse Effect. No consent, authorization, approval, permit or order of, or notice to or filing with, any governmental authority is required in connection with the execution, delivery and performance of any of the Closing Documents by the Company and except for (x) consents, authorizations, approvals, permits and orders which have been obtained and filings which have been made as of the date hereof, (y) consents, authorizations, approvals, permits, orders and filings set forth on Schedule 2.6. 2.7 SUBSIDIARIES. (a) As used herein, "Subsidiary" shall mean (i) any corporation of which a majority of the securities entitled to vote generally in the election of directors thereof, at the time as of which any determination is being made, are owned by the Company, either directly or indirectly and (ii) any joint venture, general or limited partnership or other legal entity in which the Company is the record or beneficial owner, directly or indirectly, of a majority of the equity interests. Schedule 2.7(a) accurately sets forth each Subsidiary, including its name, place of incorporation or formation, the number of shares authorized for each class of the capital stock thereof, the number of shares issued and outstanding for each class of the capital stock thereof, and the record ownership of all capital stock issued thereby. All shares of capital stock of any Subsidiary directly or indirectly owned by the Company have been duly authorized and validly issued, are fully paid, non assessable and, except as set forth on Schedule 2.7(a), are directly or indirectly owned by the Company free of any security interest, lien, pledge or other encumbrance. (b) Except as set forth on Schedule 2.7(b), there are no outstanding subscriptions, options, warrants, calls, contracts, preemptive rights, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatsoever under which any Subsidiary is or may be obligated to issue or acquire its capital stock. (c) Except as set forth on Schedule 2.7(c), there are no voting trusts, proxies or any other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. 2.8 FINANCIAL STATEMENTS. Schedule 2.8 includes true and complete copies of (i) the audited balance sheets of the Company as at December 31, 1992, 1993 and 1994, and the related audited statements of operations and of cash flows of the Company for the fiscal years then ended, including the auditors' opinions thereon and all notes thereto, and (ii) the unaudited balance sheet of the Company as at November 30, 1995, and the related 7 unaudited statement of operations of the Company for the period January 1, 1995 through November 30, 1995. Each of the foregoing financial statements (the "Financial Statements") was prepared in accordance with generally accepted accounting principles consistently applied (except, with respect to unaudited statements, for the omission of footnote disclosures and normal year end audit adjustments). Such balance sheets present fairly the financial position of the Company as of the dates stated thereon, and such statements of operations present fairly the results of the operations of the Company for the periods stated on such statements of operations. 2.9 CHANGES, DIVIDENDS, ETC. Except as set forth on Schedule 2.9, since December 31, 1994, (i) neither the Company nor any of its Subsidiaries has paid any management fee or declared or made any payment, loan, advance, dividend or other distribution to its affiliates or stockholders as such, or purchased or redeemed any shares of its capital stock, or obligated itself to do so; (ii) neither the Company nor any of its Subsidiaries has sold, transferred, encumbered or leased any of its assets except in the usual and ordinary course of business, or merged or consolidated with or into any other person, firm or entity; (iii) neither the Company nor any of its. Subsidiaries has issued or sold any shares of its capital stock or other securities or granted any options or other rights with respect thereto; (iv) neither the Company nor any of its Subsidiaries has incurred any material obligation or liability except in the ordinary course of business; (v) there has not been any termination, discontinuation, closing or disposition of any material business operation of the Company or any of its Subsidiaries; and (vi) there has not been any change in the method of accounting or accounting practice or policy of the Company or any of its Subsidiaries; nor, except as set forth on Schedule 2.9, has the Company or any of its Subsidiaries (A) agreed to do any of the foregoing, other than pursuant to this Agreement, or (B) suffered any physical damage, destruction or other loss (whether or not covered by insurance) which has had or may have a Material Adverse Effect. Except as set forth on Schedule 2.9 hereto or in the Financial Statements, since December 31, 1994, there has been no Material Adverse Effect, nor is the Company aware of the occurrence of any event which constitutes or which would, with the giving of notice or the passage of time, constitute a default under any material agreement entered into by the Company or any of its Subsidiaries. 2.10 COMPLIANCE WITH LAWS. (a) Except as set forth in Schedule 2.10 attached hereto, the Company has not received notice of, or citation or summons for, and no complaint has been filed, no penalty has been assessed and no investigation or review is in process or, to the best knowledge of the Company, threatened by any governmental authority with respect to, any violation or alleged violation of any law, regulation, order or other legal requirement, or failure by the Company to have any permit, certificate, license, approval, registration or 8 authorization (including industry certificates and approvals and including, without limitation, FAA Supplemental Type Certificates ("STCs") required in connection with the operation of its business. The Company is not in default with respect to any order, writ, judgment, award, injunction or decree of any federal, state or local court or governmental or regulatory authority or arbitrator, domestic or foreign, applicable to or in connection with its business or any of its assets, properties or operations. (b) Except as set forth in Schedule 2.10 attached hereto, with respect to the operation of its business, the Company possesses and is in compliance with all material permits, certificates, licenses, approvals, registrations and authorizations (including industry certificates and approvals and including, without limitation, STCs) required under all applicable laws, rules and regulations, all of which are in full force and effect, and the business has been conducted and is now being conducted in compliance with all applicable laws, rules, regulations, judgments and orders of the United States and states, counties, municipalities and agencies thereof, including, without limitation, laws, rules and regulations relating to pollution and environmental control, equal employment opportunity, health and safety and zoning. 2.11 LITIGATION. Except as set forth in Schedule 2.11 attached hereto, there are no claims, actions, suits, proceedings, labor disputes or investigations in process by or against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened either by a written communication directed to the Company or by an oral communication directed to the Company by a stockholder of the Company, before any federal or state court, arbitrator or governmental authority by or against the Company which, if adversely determined, may reasonably be expected to have a Material Adverse Effect or in any liability on the part of the Company which would be material to the Company or which to the best knowledge of the Company, includes a claim against or involving the Company in excess of $100,000 or which questions the validity or legality of or seeks damages in connection with this Agreement or any action taken or to be taken pursuant to this Agreement. Except as set forth in Schedule 2.11 attached hereto, there are no outstanding judgments, decrees or orders of any court or governmental authority against the Company. 2.12 PRODUCTS LIABILITY. Except for lawsuits, claims (asserted or unasserted), damages and expenses adequately covered by the Company's insurance, there are no (i) liabilities of the Company, fixed or contingent, asserted or, to the best knowledge of the Company, unasserted, with respect to any product liability or any similar claim that relates to any product sold by the Company to others prior to the Closing Date, or (ii) liabilities of the Company, fixed or contingent, asserted or, to the best knowledge of the Company, unasserted, with respect to any claim 9 for the breach of any express or implied product warranty or any other similar claim with respect to any product sold by the Company to others prior to the Closing Date, other than standard warranty obligations (to replace, repair or refund) made by the Company in the ordinary course of the conduct of its business to purchasers of its products, and except, in each case, where such liabilities do not or would not reasonably be expected to have a Material Adverse Effect. 2.13 NO BROKERS OR FINDERS. No person, firm or entity (other than Alex. Brown & Sons Incorporated) has or will have, as a result of any act or omission of the Company, any right, interest or valid claim against the Company or the Investors for any commission, fee or other compensation as a finder or broker in connection with the transactions contemplated by this Agreement. 2.14 TAXES. The Company and its Subsidiaries have timely filed with all appropriate governmental authorities all material tax returns and reports which are required to be filed prior to the date hereof. Subject to any extensions duly requested and granted, the Company and its Subsidiaries have duly and timely paid in full all taxes shown as due on such returns and reports or, to the extent such taxes are accrued but not yet due, have adequately reserved for the timely payment of any and all such taxes when due. No issue has been raised by any taxing authority which could result in a deficiency in the amount of taxes shown as due and owing on any tax return or report required to be filed by the Company or any of its Subsidiaries. 2.15 AFFILIATE TRANSACTIONS; NO SEPARATE CONSIDERATION. Except as set forth on Schedule 2.15 hereto, there are no existing agreements, understandings or arrangements between the Company or any of its Subsidiaries, on one hand, and any shareholder set forth on Schedule 2.5(a) or any affiliate of any such shareholder, on the other hand, relating to the properties, assets or conduct of the business and operations of the Company or any of its Subsidiaries. 2.16 MATERIAL CONTRACTS. All contracts material to the business of the Company and its Subsidiaries, including all contracts involving payments of, or the provision of services valued at, amounts in excess of $100,000 per year (the "Material Contracts") are set forth on Schedule 2.16 and are valid and binding and enforceable in accordance with their respective terms subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). Except as set forth on Schedule 2.16, to the knowledge of the Company, there are no existing defaults, nor have any events or circumstances occurred which, with or without notice or the lapse of time or both, would constitute defaults, under any of the Material Contracts. 10 2.17 ABSENCE OF UNDISCLOSED LIABILITIES. Except for (a) liabilities reflected or reserved against in full in the Financial Statements or incurred after the date thereof in the ordinary course of business in an amount not exceeding $100,000 in the aggregate, (b) liabilities not yet due and payable or obligations to be performed or satisfied after the date hereof under the Material Contracts, (c) liabilities incurred in the ordinary course of business and not required to be reflected in the Financial Statements, and (d) as set forth on Schedule 2.17, neither the Company nor any of its Subsidiaries has, or will have upon consummation of the Cory Repurchase, any material liability or obligation of any nature, whether accrued, absolute or contingent. 2.18 OUTSTANDING DEBT. Except as set forth in Schedule 2.18, the Company does not, and each of its Subsidiaries do not, have any outstanding secured or unsecured Debt or commitments for any Debt, and as of the Closing Date there will exist no default or event of default by the Company or any of its Subsidiaries under the provisions of any instrument evidencing such Debt or of any agreement relating thereto that has or would be expected to have a Material Adverse Effect. As used in this Agreement, "Debt" shall mean, as to any person (calculated for any person without duplication): (i) all liabilities, whether recourse is limited or otherwise, for borrowed money or for the deferred purchase price of property or services (but excluding trade expenses and accounts payable incurred in the ordinary course of business and which are not overdue by more than 90 days unless being contested in good faith), including obligations under leases which would be treated as capital leases; (ii) reimbursement obligations with respect to letters of credit; (iii) any obligation secured by any property or asset of such person; (iv) any obligation with respect to currency or hedging agreements; and (v) any of the foregoing liabilities which such person has guaranteed. 2.19 TITLE TO AND CONDITION OF PROPERTY. The Company and its Subsidiaries have good and marketable title to all material property and assets (real, personal or mixed) reflected on the Financial Statements, free and clear of any security interest, mortgage, pledge, or other lien or encumbrance, except for (i) liens, mortgages and security interests securing indebtedness reflected on the Financial Statements, and (ii) security interests, mortgages, pledges and other liens and encumbrances which do not materially interfere with the operation of the business of the Company and its Subsidiaries. Such property and assets include all property and assets necessary to conduct the business and operations of the Company as now conducted. The Company and each of its Subsidiaries enjoys peaceful and undisturbed possession under all leases necessary in any material respect for the operation of its properties and businesses; and none of such leases contain any unusual or burdensome provisions which might materially affect or impair the operation of such properties and businesses. Schedule 2.19 sets 11 forth a description of all real property owned or leased by the Company or any Subsidiary. 2.20 ENVIRONMENTAL COMPLIANCE. Except as set forth on Schedule 2.20 attached hereto: (a) The Company and each of its Subsidiaries have obtained all environmental, health and safety permits, licenses and other authorizations required under any and all Environmental Laws the absence of which permit, license or other authorization would have a material adverse effect to the Company ("Environmental Permits") to carry on their respective business as now being or as proposed to be conducted. No modification, revocation, reissuance, alteration, transfer, or amendment of the Environmental Permits, or any review by, or approval of, any third party of the Environmental Permits is required in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of the Company following such consummation. Each Environmental Permit is in full force and effect and the Company and each of its Subsidiaries are in compliance with the terms and conditions thereof, and is, and has been, also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, provisions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, including, without limitation, the requirement to have obtained in the past then applicable Environmental Permits except as would not reasonably be expected to result in liability under Environmental Laws. To the best knowledge of the Company, there is no condition that could be reasonably expected to prevent or interfere with future compliance with Environmental Laws, including but not limited to compliance with required Environmental Permits. (b) To the best knowledge of the Company, no notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation, litigation, arbitration, administrative proceeding or review is pending or threatened by any governmental or other entity with respect to any past or present actual or alleged noncompliance with any Environmental Law, any Hazardous Material, or any alleged or actual failure by the Company or any of its Subsidiaries to have or to have had when necessary, any Environmental Permit. (c) Neither the Company nor any of its Subsidiaries now or previously owns, operates or leases a treatment, storage or disposal facility requiring a permit under the 12 Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and, except as would not reasonably be expected to result in liability under any Environmental law, (i) no polychlorinated biphenyls (PCBs) are or have been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (ii) no asbestos or asbestos-containing material is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iii) there are no landfills, underground storage tanks or surface impoundments, in each case either active or abandoned, at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials are present, have been otherwise Released or threatened to be Released, at, on, under, from or about any site or facility now or previously owned, operated, leased or otherwise used by the Company or any of its Subsidiaries. (d) Neither the Company nor any of its Subsidiaries has disposed of, transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to environmental liability against any Company or any of its Subsidiaries, or to any other location in a manner that could be expected to result in liability under any Environmental Law. (e) No Hazardous Material generated by the Company or any of its Subsidiaries has been recycled, treated, stored disposed of or Released by the Company or any of its 13 Subsidiaries at any location other than those listed in Schedule 2.20. (f) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company or any of its Subsidiaries and no site or facility now or previously owned, operated or leased by any Company and each of its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (g) No liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries, and no government action has been taken or is in process that could subject any such site or facility to such liens and none of the Company or any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (h) All environmental investigations, studies, audits' tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries and that could result in liability under any Environmental Law have been made available to the Investors. (i) There are no past or present actions, activities, events, conditions or circumstances, including without limitation the Release, threatened Release, emission, discharge, generation, treatment, storage or disposal of Hazardous Materials, in regard to any property currently or formerly owned, operated, leased or otherwise used by the Company or any of its Subsidiaries or the past and present operations or business of the Company or any of its Subsidiaries that would reasonably be expected to give rise to liability under any Environmental Laws or any contract or agreement. (j) Neither the Company nor any of its Subsidiaries has assumed, contractually or by operation of law, any liabilities, potential liabilities or obligations under any Environmental Laws. (k) Neither the Company nor any of its Subsidiaries has entered into, has agreed to, or is subject to any judgment, decree, order or other similar requirement of any governmental authority under any Environmental Laws, including without limitation those relating to compliance 14 with Environmental Laws or to investigation, cleanup, remediation or removal of Hazardous Substances. (l) No submission to or filing with, or any review or approval by, any third party is required under any Environmental Law, including without limitation the New Jersey Industrial Site Recovery Act, the Connecticut Transfer Act, the Illinois Responsible Property Transfer Act, and the Indiana Responsible Property Transfer Act, in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of the Company or its Subsidiaries following such consummation. (m) No matter or item referenced in Schedule 2.20 could reasonably be expected to result in a Material Adverse Effect. For purposes of this Section 2.20, the following definitions shall apply: "Environmental Laws" means any and all federal, state, and local laws, ordinances, rules, regulations, codes, duties under the common law or orders, including, without limitation, any requirements imposed under any permits, licenses, judgments, decrees, agreements or recorded covenants, conditions, restrictions or easements, the purpose of which is to protect the environment, human health, public safety or welfare, or which pertain to Hazardous Materials. "Hazardous Materials" means any product, substance, chemical, force, material or waste, whose presence, nature, quantity and/or intensity of existence, use, manufacture, processing, treatment, storage, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the property owned or leased by the Company or any of its Subsidiaries (the "Property") is either (A) potentially injurious to public health, safety, welfare, or the environment, or to the Property; (B) regulated, monitored or subject to reporting by any governmental agency; or (C) a basis for potential liability to any governmental agency or a third party under any applicable statute or common law theory. Without limiting the foregoing, the term, "Hazardous Materials," includes but is not limited to any material, waste or substance which is or contains (A) petroleum or petroleum products, including crude oil or any fraction thereof, natural gas, or synthetic gas or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) flammable explosives; (E) radioactive materials; (F) radon in excess of EPA recommended exposure limits or (G) paint containing concentrations of lead or mercury. 15 "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. 2.21 EMPLOYEE PLANS. (a) Schedule 2.21(a) contains a true and complete list of each "employee benefit plan" (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including, without limitation, multiemployer plans within the meaning of ERISA section 3(37)), stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required in the future as a result of the transaction contemplated by this Agreement or otherwise), whether formal or informal, oral or written, legally binding or not under which any employee or former employee of the Company has any present or future right to benefits or under which the Company has any present or future liability. All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the "Company Plans". (b) With respect to each Company Plan, the Company has delivered to the Investors a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable, (i) any related trust agreement, annuity contract or other funding instrument; (ii) the most recent determination letter; (iii) any summary plan description and other written communications (or a description of any oral communications) by the Company to its employees concerning the extent of the benefits provided under a Company Plan; and (iv) for the three most recent years (A) the Form 5500 and attached schedules; (B) audited financial statements; (C) actuarial valuation reports; and (D) attorney's response to an auditor's request for information. (c) (i) Each Company Plan has been established and administered in accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations; (ii) each Company Plan which is intended to be qualified within the meaning of section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), is so qualified and has received a favorable determination letter as to its qualification and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification; (iii) with respect to any Company Plan, no actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or threatened, no facts or circumstances exist which could give rise to any such actions, suits or claims 16 and the Company will promptly notify the Investors in writing of any pending or threatened claims arising between the date hereof and the Closing Date; (iv) neither the Company nor any other party has engaged in a prohibited transaction, as such term is defined under Code section 4975 or ERISA section 406, which would subject the Company or the Investors to any taxes, penalties or other liabilities under Code section 4975 or ERISA sections 409 or 502(i); (v) no event has occurred and no condition exists that would subject the Company, either directly or by reason of its affiliation with any member of its Controlled Group (as hereinafter defined), to any tax, fine or penalty imposed by ERISA, the Code or other applicable laws, rules and regulations including, but not limited to the taxes imposed by Code sections 4971, 4972, 4977, 4979, 4980B, 4976(a) or the fine imposed by ERISA section 502(c); (vi) all insurance premiums required to be paid with respect to Company Plans as of the Closing Date have been or will be paid prior thereto and adequate reserves have been provided for on the Company's balance sheet for any premiums (or portions thereof) attributable to service on or prior to the Closing Date; (vii) for each Company Plan with respect to which a Form 5500 has been filed, no material change has occurred with respect to the matters covered by the most recent Form since the date thereof; (viii) all contributions required to be made prior to the Closing Date under the terms of any Company Plan, the Code, ERISA or other applicable laws, rules and regulations have been or will be timely made and adequate reserves have been provided for on the Company's balance sheet for all benefits attributable to service on or prior to the Closing Date; (ix) no Company Plan provides for an increase in benefits on or after the Closing Date; and (x) each Company Plan may be amended or terminated without obligation or liability (other than those obligations and liabilities for which specific assets have been set aside in a trust or other funding vehicle or reserved for on the Company's balance sheet). "Controlled Group" shall mean any organization which is a member of a controlled group of organizations within the meaning of Code sections 414(b), (c), (m) or (o). (d) (i) No Company Plan has incurred any "accumulated funding deficiency" as such term is defined in ERISA section 302 and Code section 412 (whether or not waived); (ii) no event or condition exists which could be deemed a reportable event within the meaning of ERISA section 4043 which could result in a liability to the Company or any member of its Controlled Group and no condition exists which could subject the Company or any member of its Controlled Group to a fine under ERISA section 4071; (iii) as of the Closing Date, the Company and each member of its Controlled Group have made all required premium payments when due to the Pension Benefit Guaranty Corporation (the "PBGC"); (iv) neither the Company nor any member of its Controlled Group is subject to any liability to the PBGC for any plan termination occurring on or prior to the Closing Date; (v) no amendment has occurred which has required or could require the Company or any member of its Controlled Group to provide 17 security pursuant to Code section 401(a)(29); and (vi) neither the Company nor any member of its Controlled Group has engaged in a transaction which could subject it to liability under ERISA section 4069. (e) With respect to each of the Company Plans which is not a multiemployer plan within the meaning of section 4001(a)(3) of ERISA but is subject to Title IV of ERISA, as of the Closing Date, the assets of each such Company Plan are at least equal in value to the present value of the accrued benefits (vested and unvested) of the participants in such Company Plan on a termination and projected basis, based on the actuarial methods and assumptions indicated in the most recent actuarial valuation reports. (f) With respect to any multiemployer plan (within the meaning of section 4001(a)(3) of ERISA) to which the Company or any member of its Controlled Group has any liability or contributes (or has at any time contributed or had an obligation to contribute): (i) the Company and each member of its Controlled Group has or will have, as of the Closing Date, made all contributions to each such multiemployer plan required by the terms of such multiemployer plan or any collective bargaining agreement; (ii) neither the Company nor any member of its Controlled Group has incurred any withdrawal liability under Title IV of ERISA or would be subject to such liability if, as of the Closing Date, the Company or any member of its Controlled Group were to engage in a complete withdrawal (as defined in ERISA section 4203) or partial withdrawal (as defined in ERISA section 4205) from any such multiemployer plan; (iii) no such multiemployer plan is in reorganization or insolvent (as those terms are defined in ERISA sections 4241 and 4245, respectively); and (iv) neither the Company nor any member of its Controlled Group has engaged in a transaction which could subject it to liability under ERISA section 4212(c). (g) (i) Each Company Plan which is intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code meets such requirements; and (ii) the Company has received a favorable determination from the Internal Revenue Service with respect to any trust intended to be qualified within the meaning of Code section 501(c)(9). (h) Schedule 2.21(h) sets forth, on a plan by plan basis, the present value of benefits payable presently or in the future to present or former employees of the Company under each unfunded Company Plan. (i) Except as set forth on Schedule 2.21(i), no Company Plan exists which could result in the payment to any Company employee of any money or other property or rights or accelerate or provide any other rights or benefits to any Company employee as a result of the transaction contemplated by this 18 Agreement, whether or not such payment would constitute a parachute payment within the meaning of Code section 280G. (j) The transaction contemplated by this Agreement does not constitute a change in the ownership or effective control of a corporation or the ownership of a substantial portion of the assets of a corporation for purposes of Code section 280G or the regulations thereunder. (k) Except as set forth in Schedule 2.21(k) attached hereto, (a) there are no open National Labor Relations Board claims, petitions, proceedings, charges, complaints or notices with respect to the Company, (b) the Company has no labor negotiations in process with any labor union or other labor organization, (c) no labor disputes, including, but not limited to, strikes, slowdowns, picketing or work stoppages or other labor difficulty exist or to the best of the Company's knowledge are threatened, with respect to any employees of the Company, (d) no grievance or arbitration proceeding arising out of or under any collective bargaining agreement relating to the employees of the Company is in process, and to the best knowledge of the Company, no claim thereunder exists, (e) the Company is not experiencing any labor disputes, including but not limited to strikes, slowdowns, picketing or work stoppages with respect to the employees of the Company and (f) no "plant closing" or "mass layoff" has been effectuated by the Company (in each case as defined in the Worker Adjustment and Retraining Notification Act (29 U.S.C. Section 2101, ET SEQ.), as amended). To the best knowledge of the Company, there are no efforts in process by unions to organize any employees of the Company who are not now represented by recognized collective bargaining agents. 2.22 PATENTS, ETC. All patents, trademarks, service-marks, trade names, permits, licenses, franchises or other rights (including industry certificates and approvals and including, without limitation, STC approvals) (collectively, "Intangible Rights") owned or held by the Company or any of its Subsidiaries that are material to the business of the Company or any of its Subsidiaries are described on Schedule 2.22 attached hereto. Except as described on Schedule 2.22, all such Intangible Rights are free and clear of any lien. Nothing has come to the attention of the Company to the effect that (i) any activity in operating the business of the Company or any of its Subsidiaries as presently conducted or as proposed to be conducted may infringe any patent, trademark, service-mark, trade name, copyright, permit, license, franchise or other right owned by any other person, (ii) there is pending or threatened any claim or litigation against or affecting the Company or any of its Subsidiaries contesting its right to carry on such activities or (iii) there is, or there is pending or proposed, any statute, law, rule, regulation, standard or code which would prevent or inhibit, or substantially reduce the projected revenues of, or otherwise adversely affect the business, condition (financial or otherwise), or operations of, the Company. 19 2.23 FULL DISCLOSURE. No representation or warranty made by the Company herein nor any certificate, schedule, or instrument furnished or to be furnished by the Company pursuant hereto or in connection herewith, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. 3. REPRESENTATIONS AND WARRANTIES OF NASSAU CAPITAL AND NAS Nassau Capital and NAS hereby jointly and severally represent and warrant to the Company as follows: 3.1 ORGANIZATION, STANDING, ETC. Nassau Capital is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. NAS is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. 3.2 PARTNERSHIP ACTS AND PROCEEDINGS; ENFORCEABILITY OF AGREEMENTS. Each of Nassau Capital and NAS has all requisite power and authority to enter into this Agreement, the Shareholders Agreement and the Registration Rights Agreement and to perform its obligations hereunder and thereunder. All action on the part of Nassau Capital and its partners and by NAS and its members, officers and managers necessary for the authorization, execution and delivery of this Agreement, the Shareholders Agreement and the Registration Rights Agreement by Nassau Capital and NAS, and the performance of all obligations of Nassau Capital and NAS hereunder and thereunder, has been taken. This Agreement has been, and the Shareholders Agreement and the Registration Rights Agreement when executed will be, duly executed and delivered by each of Nassau Capital and NAS and constitutes or when executed will constitute a valid and binding obligation of each of Nassau Capital and NAS, and is or when executed will be enforceable against each of Nassau Capital and NAS in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to general principles of equity (whether considered in a proceeding in equity or at law). 3.3 NO CONFLICT; GOVERNMENTAL APPROVALS AND NOTICES. Neither the execution and delivery of this Agreement, the Shareholders Agreement and the Registration Rights Agreement nor the consummation of the transactions contemplated hereby and thereby will (i) violate the partnership agreement of Nassau Capital, (ii) conflict with or constitute a violation of any law, statute, judgment, order, decree or regulation applicable or relating to Nassau Capital or NAS, or (iii) result in a breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of Nassau Capital or NAS pursuant to, any agreement or other instrument to 20 which Nassau Capital or NAS is a party or by which either or any portion of their properties, assets or rights are bound or affected which could reasonably be expected to have a material adverse effect on the transactions contemplated hereunder. No consent, authorization, approval, permit or order of, or notice to or filing with, any governmental authority is required in connection with Nassau Capital's and NAS's execution, delivery and performance of this Agreement, the Shareholders Agreement or the Registration Rights Agreement, except to the extent that the failure to obtain any such Governmental Consent could not reasonably be expected to have a material adverse effect on the transactions contemplated hereby. 3.4 RESTRICTED SECURITIES. Each of Nassau Capital and NAS understands that none of the Shares has been registered under the Securities Act of 1933, as amended (the "1933 Act"), or registered or qualified under any state securities laws, and, in addition to the restrictions on transfer set forth in the Shareholders Agreement, that they may not transfer the Shares in a manner inconsistent with their status as restricted securities. 3.5 INVESTMENT INTENT. The Securities are being purchased for Nassau Capital's and NAS's own account and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the 1933 Act. Each of Nassau Capital and NAS understands that the Shares have not been registered under the 1933 Act by reason of their contemplated issuance in transactions exempt from the registration and prospectus delivery requirements of the 1933 Act pursuant to Section 4(2) thereof, that certificates representing the Shares shall bear the legend provided under the Shareholders Agreement (which legends shall be removed by the Company at the request of Nassau Capital or NAS when appropriate) and that the reliance of the Company and others upon this exemption is predicated in part upon this representation and warranty by Nassau Capital and NAS. Neither Nassau Capital nor NAS was formed for the specific purpose of purchasing the Securities. 3.6 SOPHISTICATED INVESTOR. Each of Nassau Capital and NAS has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Securities and of making an informed investment decision. Each of Nassau Capital and NAS is capable of bearing the economic risk inherent in ownership of the Securities and retaining the Securities for an indefinite period. 3.7 ACCESS TO INFORMATION. Each of Nassau Capital and NAS has been given the opportunity to ask questions of, and receive and evaluate answers and information from, the Company concerning the Company and its Subsidiaries and the terms and conditions of its investment in the Securities, and been provided with, or had access to, such documents and other information as it deems necessary or useful in its evaluation of the merits and 21 risks of an investment in the Securities. Each of Nassau Capital and NAS has received such advice as to the federal and state tax consequences of the transactions contemplated by this Agreement from its own tax advisors as it deems necessary. 3.8 NO BROKERS OR FINDERS. No person, firm or entity has or will have, as a result of any act or omission by Nassau Capital or NAS, any right, interest or valid claim against the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. 4. CONDITIONS PRECEDENT 4.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS. The obligations of the Investors to consummate the purchase of the Securities is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company and any of its Subsidiaries contained herein, shall be true and correct in all material respects on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty shall be true and correct as of such date. Each Investor shall receive at Closing a certificate of the Secretary or Assistant Secretary of the Company, dated the Closing Date, certifying the foregoing. (b) NO MATERIAL ADVERSE CHANGE. There shall not have occurred or been threatened any event which could have a Material Adverse Effect. (c) SHAREHOLDERS AGREEMENT. The Company shall have entered into the Third Amended and Restated Shareholders Agreement with the Investors and certain of its other shareholders, substantially in the form of Exhibit C hereto (the "Shareholders Agreement"). (d) REGISTRATION RIGHTS AGREEMENT. The Company shall have entered into the Third Amended and Restated Registration Rights Agreement with the Investors and certain of its other shareholders, substantially in the form of Exhibit D hereto (the "Registration Rights Agreement"). (e) CERTIFICATE OF INCORPORATION. The Company shall have duly adopted and filed the Amended and Restated Certificate of Incorporation, in the form of Exhibit A attached hereto. 22 (f) CORY REPURCHASE. Consummation of the Cory Repurchase shall occur simultaneously with the Closing on the terms and conditions set forth on Schedule 1.5 hereto and the Investors shall have received copies of the Cory Repurchase Documents, certified by the Secretary or Assistant Secretary of the Company as true and complete copies thereof together with evidence of authorization by the Company of each Cory Repurchase Document, and the transactions contemplated therein. (g) NO LITIGATION. No action, suit, investigation, arbitration, or administrative or governmental proceeding shall be pending, seeking to restrain, prohibit or invalidate the transactions contemplated by this Agreement, the Shareholders Agreement the Registration Rights Agreement or the Cory Repurchase Documents. (h) LEGAL OPINION. The Investors shall have received from Spolin & Silverman, counsel for the Company, an opinion in the form of Exhibit E hereto, addressed to the Investors. (i) APPROVALS AND CONSENTS. The Company shall have duly received all authorizations, waivers, consents, approvals, licenses, franchises, permits and certificates (collectively, the "Approvals") by or of all federal, state and local governmental authorities, and all material Approvals by or of all other persons, necessary or advisable for the issuance of the Shares, and all such Approvals shall be in full force and effect at the time of the Closing. The Company shall have delivered to the Investors an Officers' Certificate, dated the Closing Date, to such effect. (j) PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Securities shall not, to the knowledge of the Company, violate any applicable law or governmental regulation (including, without limitation, Section 5 of the 1933 Act) and shall not as a result of any act or omission by Company subject the Investors to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation. The Investors shall have received such certificates or other evidence of compliance as the Investors may request. (k) COMPLIANCE WITH SECURITIES LAWS. The issuance, offering and sale of the Securities under this Agreement shall have complied with all applicable requirements of federal and state securities laws, and the Investors shall have received such evidence of compliance as the Investors may request. (l) INFORMATION AND MATERIALS. The Investors shall have received such other information, as the Investors or their counsel may reasonably request including, but not 23 limited to, an environmental audit report in form and substance satisfactory to the Investors with respect to any environmental hazards, conditions, liabilities or potential liabilities to which the Company and its Subsidiaries may be subject. (m) AMENDMENTS, WAIVERS, CONSENTS, ETC. The Investors and their counsel shall have received evidence satisfactory to them that any and all amendments or waivers of, or consents to, any agreement, instrument, or document to which the Company is party or by which the Company is bound, necessary or advisable, in the sole opinion of the Investors, to effectuate the transactions contemplated hereby shall have been obtained by the Company, including, without limitation, (i) a waiver of Sections 2.10(c) and 9.24 of the Credit Agreement, dated as of November 2, 1994, among the Company, the Subsidiary Guarantors parties thereto, the Lenders parties thereto, and Internationale Nederlanden (U.S.) Capital Corporation, as Agent thereunder, and (ii) a waiver of Sections 7K and 16F of the Securities Purchase Agreement, dated as of November 2, 1994, among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc., in each and every case on terms satisfactory to the Investors. (n) COMPLIANCE WITH AGREEMENTS. The Company and each of its Subsidiaries shall be in compliance with all of the material covenants, terms and conditions of all loan documents, shareholder agreements and other material agreements of the Company (including all existing or proposed credit facilities, loan agreements and the like) which will remain or be outstanding immediately after the Closing Date, and such agreements shall permit the performance by the Company and its Subsidiaries of all of the obligations and transactions contemplated by this Agreement. The Company shall have delivered to the Investors an Officers' Certificate, dated the Closing Date, to such effect. 4.2 CONDITION PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the issuance and sale of the Securities is subject to the condition that the representations and warranties of Nassau Capital and NAS contained herein shall be true and correct in all material respects on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty shall be true and correct as of such date. The Company shall receive at Closing a certificate from each of the General Partner of Nassau Capital and the Manager of NAS, each dated the Closing Date, certifying the foregoing. 24 5. AFFIRMATIVE COVENANTS The Company covenants that from and after the date of this Agreement through the Closing and thereafter (unless otherwise provided below): 5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. For so long as the Company does not have any class of securities registered under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company will deliver, or cause to be delivered to each Investor: (a) within 30 days prior to the end of each fiscal year, but no earlier than 60 days prior to the end of such fiscal year, a budget (on a monthly basis) for the Company and its Subsidiaries for the following fiscal year (including consolidating and consolidated statements of income, cash flow and balance sheets prepared in accordance with GAAP), in form heretofore provided to the Investors; PROVIDED, HOWEVER, that notwithstanding the registration by the Company of any class of securities under the 1934 Act, the Company will deliver such budgets to each Investor if the Investors are not entitled at such time to a Designee on the Board (each, as defined in Section 5.2(a) hereof); (b) as soon as available and in any event within 30 days after the end of each month, consolidating and consolidated statements of income and cash flow of the Company and its Subsidiaries for such month and for the period from the beginning of the current fiscal year to the end of such month and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such period and, beginning in fiscal year 1996, setting forth, in each case, in comparative form, figures for the corresponding month and period in the preceding fiscal year and the budget for such month and for the period from the beginning of the current fiscal year to the end of such month, all in reasonable detail and reasonably satisfactory in form and scope to the Investors and certified by an authorized financial officer of the Company as fairly presenting in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP; (c) as soon as practicable and in any event within 45 days after the end of each fiscal quarter of the Company, consolidating and consolidated statements of income and cash flow of the Company and its Subsidiaries for such quarter and for the period from the beginning of the current fiscal year to the end of such quarter and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, setting forth, in each case, in comparative form, figures for the corresponding quarter in the preceding fiscal year and the budget for such quarter, all in 25 reasonable detail and satisfactory in form and scope to the Investors, and certified by an authorized financial officer of the Company as fairly presenting in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP; (d) as soon as available and in any event within 120 days after the end of each fiscal year, consolidating and consolidated statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, and the related consolidating and consolidated balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, setting forth, in each case, in comparative form, corresponding consolidated and consolidating figures from the preceding fiscal year, all in reasonable detail and reasonably satisfactory in form and scope to the Investors, and accompanied (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing (which shall be generally recognized as one of the "Big Six" independent public accounting firms), which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of an authorized financial officer of the Company, which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with GAAP, consistently applied, as at the end of, and for, such fiscal year; (e) promptly upon transmission thereof to the shareholders of the Company generally or to any other security holder of the Company, including, without limitation, any holder of Debt, copies of all financial statements, financial analyses, notices, certificates (including, without limitation, the compliance certificate to be furnished under the Credit Agreement, dated November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank ("Provident") and Internationale Nederlanden (U.S.) Capital Corporation ("ING"), as the same has been, or may be, amended, modified or supplemented (the "Credit Agreement")), annual reports and proxy statements so transmitted; (f) promptly upon receipt thereof, a copy of each other report submitted to the Company or any of its Subsidiaries by independent accountants in connection with 26 any annual, interim or special audit of the books of the Company or any of its Subsidiaries made by such accountants, or any management letters or similar document submitted to the Company or any of its Subsidiaries by such accountants; (g) promptly upon any material revision to the budgets referred to in paragraph (a) above, such monthly budgets, as revised; (h) promptly upon any officer of the Company obtaining knowledge of any event of default under any credit agreement, loan agreement or indenture that the Company is party to; and (i) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as such Investor may reasonably request. 5.2 BOARD MEMBER: ATTENDANCE AT BOARD MEETINGS. (a) For so long as the Investors hold not less than 5% of the Common Equivalent Shares (as defined in the Shareholders Agreement), at the Investors' request, the Company will cause one person designated by the Investors (the "Designee") to be included in any list of persons nominated by management of the Company for election as members of the Board of Directors of the Company (the "Board") and will take all actions reasonably within its power to cause the Designee to be elected a member of the Board. The Designee, as a director, will have the right to be a member of the Audit Committee and the Compensation Committee of the Board, or such other committees of the Board performing the functions typically performed by such committees. (b) The Company will reimburse such director for all costs and expenses (including travel expenses) incurred in connection with such director's attendance at meetings of the Board or any committee of the Board upon which such director serves. The Company will pay such director annual fees and fees for attending Board or committee meetings, if any such fees are paid to directors. 5.3 RESERVATION OF SHARES. The Company will reserve and keep reserved at all times sufficient shares of its Common Stock for issuance upon conversion of the Securities and, upon such conversion, the Company will promptly issue and deliver the shares of Common Stock required to be delivered, and such shares, when issued and delivered, will be validly issued, fully paid and nonassessable. 5.4 USE OF PROCEEDS. The Company will use the proceeds from the sale and issuance of the Securities for the purpose described in Section 1.5 hereof. 27 6. INDEMNIFICATION 6.1 INDEMNIFICATION. (a) From and after the Closing, the Company shall indemnify and save harmless the Investors and their respective officers, directors, members, stockholders, partners and employees (as applicable) (the "Investor Indemnitees") from and against any and all loss, cost, damage or expense (including court costs and reasonable attorneys' fees) whatsoever asserted against or incurred by such Investor Indemnitee resulting from or arising out of any breach of any representation, warranty or covenant of the Company contained in this Agreement. (b) From and after the Closing, each Investor shall severally indemnify and save harmless the Company and its officers, directors, stockholders and employees (the "Company Indemnitees") from and against any and all loss, cost, damage or expense (including court costs and reasonable attorneys' fees) whatsoever asserted against or incurred by such Company Indemnitee resulting from or arising out of any breach of any representation or warranty made by such Investor in this Agreement. 6.2 CERTAIN PROCEDURES. In the event that a claim is made by a third party against any Investor Indemnitee or Company Indemnitee (the "Claimant") which, if successful, would entitle such Claimant to indemnification hereunder, or any Claimant desires to make a claim against any party to this Agreement (the "Indemnitor") under this Section 6, the Claimant shall give prompt notice to the Indemnitor of any actions, suits, proceedings and demands at any time instituted against or made upon Claimant and for which the Claimant claims a right to indemnification hereunder (including the amount and circumstances surrounding any claim); PROVIDED that the failure of a Claimant to give notice as provided in this Section 6.2 shall not relieve the Indemnitor of its obligations hereunder, except to the extent that the Indemnitor is actually prejudiced by such failure to give notice. The Indemnitor shall within 30 days after receipt of notice undertake to defend, adjust, compromise or settle the action, suit, proceeding or demand on which such notice is based, in the name of the Claimant or otherwise as the Indemnitor shall elect. Notwithstanding the foregoing, the Claimant shall have the right to defend, adjust, compromise or settle any action, suit, proceeding or demand on its own behalf and to be indemnified therefor if (a) the Indemnitor does not provide the undertaking referred to in the previous sentence, (b) the Indemnitor has not employed counsel reasonably satisfactory to the Claimant, or (c) in the sole discretion of the Claimant, there is a conflict or potential conflict of interest between the Claimant and the Indemnitor or a legal defense available to it which differs from or is additional to those available to Indemnitor, in such action, suit or proceeding. The Indemnitor shall not, except with the consent of the Claimant, enter into 28 any settlement that does not include as a term thereof an unconditional release of the Claimant from all liability with respect to the applicable claim. 7. WARRANTS 7.1 TERM; EXERCISE. Subject to the terms and conditions contained in this Agreement and in the Warrants, the Warrants are exercisable, in the manner set forth in the Warrants, in whole or in part, at any time and from time to time during the period commencing on the Effective Date (as defined in each such Warrant) and ending at 5:00 p.m. New York City time on December 31, 2003, (the "Expiration Date"), and shall be void thereafter. 7.2 SERIES OF WARRANTS AND TRIGGERING EVENT. (a) At the Closing, the Investors will receive the following Warrants exercisable into a maximum of 7% of the Common Stock on a Fully Diluted basis (hereinafter defined): Percentage of Series Shares for Which of Warrant Exercisable ---------- ---------------- Series E up to 2% Series F 2% Series G 3% (b) The Series E Warrants will be essentially identical to the Series F and Series G Warrants in all respects, except that, in contrast to the Series F and Series G Warrants, the occurrence of one or more Registered Public Offerings (hereinafter defined) prior to December 31, 1997 will determine the Warrant Value (as defined in the Series E Warrant), and, provided that a Triggering Event (hereinafter defined) shall not have occurred prior to December 31, 1997, cause such Warrant to become exercisable and freely transferable as of December 31, 1997. The Warrant Value shall be determined in accordance with the terms of such Warrant. If a Triggering Event occurs prior to December 31, 1997, whether or not a Registered Public Offering shall have occurred prior to the occurrence of such Triggering Event, the Series E Warrants, and all other Warrants not then exercisable, shall be void as of the date of such Triggering Event. (c)(i) The Series F and Series G Warrants will be identical in all respects and will become exercisable and may only be transferred if not terminated pursuant to paragraph (ii) below prior to the following corresponding dates: 29 Series of Warrant If Not Terminated Becoming Exercisable Prior To: and Freely Transferable ----------------- ----------------------- December 31, 1998 Series F December 31, 1999 Series G (ii) With respect to the Series F and Series G Warrants, (A) if one or more Registered Public Offerings occurs prior to December 31, 1997, but no Triggering Event shall have occurred, then the Series F and Series G Warrants shall remain unaffected and shall not be void as a result of such Registered Public Offering, and (B) if a Triggering Event occurs prior to the date any series of Warrant would otherwise become exercisable or transferable, then such series of Warrant, and all other series of Warrants not then exercisable, shall be void as of the date of occurrence of such Triggering Event. (d) For purposes hereof, the following terms shall have the following meanings: "Fully Diluted" shall mean, at any point in time, the number of common shares outstanding, increased by all common equivalent shares (stock options, warrants, convertible securities and any other security or instrument, whether in or out of the money, that could result in additional common shares being issued at any time in the future) at the time outstanding. "Registered Public Offering" shall mean the closing prior to December 31, 1997 of an underwritten public offering for shares of Common Stock of the Company pursuant to a registration statement under the 1933 Act, with proceeds to the Company of $25,000,000 or more, and valuing the total common equity of the Company, on a Fully Diluted basis, at an amount equal to or greater than $60,000,000 but less than $75,000,000. "Triggering Event" shall mean the occurrence of (i) the sale of all or substantially all of the stock or assets of the Company for cash in an amount equivalent to a common equity valuation of $60,000,000 or more or (ii) a Nassau QPO. "Nassau QPO" shall mean the closing of an underwritten public offering for shares of Common Stock of the Company pursuant to a registration statement under the 1933 Act, with proceeds to the Company of $25,000,000 or more, and valuing, at closing, the total common equity of the Company, on a Fully Diluted basis, at an amount equal to or greater than the Minimum Equity Market Value applicable to the year in which such offering occurs. 30 "Minimum Equity Market Value" shall mean for any period, the amount set forth below opposite such period: Period Minimum Equity Market Value ------ --------------------------- From the Closing Date to December 30, 1997 $75,000,000 December 31, 1997 to December 30, 1998 $95,000,000 December 31, 1998 to December 30, 1999 $120,000,000; PROVIDED, HOWEVER, that as of the date of the closing of any underwritten public offering (the "Calculation Date"), if there has been an increase from the date hereof in the number of shares of Common Stock outstanding on a Fully Diluted basis (without giving effect to the underwritten public offering giving rise to such calculation), then the Minimum Equity Market Value shall be adjusted and shall be equal to the product of (A) the applicable Minimum Equity Market Value set forth above for the period in question MULTIPLIED BY (B) a fraction (i) the numerator of which is the number of shares of Common Stock outstanding on a Fully Diluted basis on such Calculation Date and (ii) the denominator of which is the number of shares of Common Stock outstanding on a Fully Diluted basis on the date hereof (after giving effect to the purchase of Securities hereunder). 7.3 PUT. (a)(i) If no Triggering Event shall have occurred by December 31, 2000, then, the Investors or other holder of the Warrants may, at any time thereafter, by giving written notice to the Company (the "Put Notice"), require the Company to repurchase (the "Put") all or any portion of the Warrants held by the Investors or other holder of the Warrants for an amount equal to the Put Amount (as defined in the Securities Purchase Agreement dated as of November 2, 1994 among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. (the "Electra Securities Agreement")) and corresponding to that number of shares of Common Stock then issuable upon exercise of the Warrants designated in the Put Notice. The Company shall pay to the Investors, subject to Section 7.3(a)(iii) hereof such Put Amount within 30 days of the date of the Put, or, if sooner, at the same time that ING, Provident, Banc One or Electra is required to be paid pursuant to the terms of the ING Warrant, the Provident Warrant, the Banc One Warrant and the Electra Warrants (each as defined in the Electra Securities Agreement), respectively, and shall execute and deliver to the Investors a promissory note evidencing such Put Amount; any unpaid balance of the Put Amount shall bear interest, which interest shall be paid together with any payment of the Put Amount, at a rate of 14% per annum. 31 (ii) Immediately upon receipt of (i) a Put Notice or (ii) notice, whether prior to or after December 31, 2000, from the holders of any of the ING Warrant, the Provident Warrant, the Banc One Warrant or the Electra Warrants (such holders being referred to herein collectively as the "Put Holders") that the Investors or such Put Holders intend to exercise put rights in connection with the repurchase of any of their warrants by the Company, the Company shall, before repurchasing any such warrants, give written notice thereof to the Investors and/or all other Put Holders, as the case may be. For a period of twenty (20) days following receipt of such notice, the Investors and each Put Holder shall be entitled, by written notice to the Company, the Investors and/or each Put Holder, as the case may be, to elect to require the Company to repurchase for cash its pro rata share (on the basis of the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Investors and each such Put Holder) of the warrants held by the Investors and each such Put Holder. If, at the expiration of such twenty day period the Investors or any Put Holders have not elected to have the Company repurchase their warrants, the Company shall repurchase only those warrants for which notice has been received. (iii) If the Company shall not have funds legally available in the amount necessary to repurchase all warrants of the Investors and Put Holders with respect to which notice has been received, then such warrants shall be repurchased by the Company (A) first, on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of all of the warrants held the Put Holders, and (B) second, to the extent of funds legally available therefor, on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Investors. Any Put not satisfied in full in cash shall remain an obligation of the Company and shall be evidenced by a promissory note due within 366 days and hearing interest at a rate of 14% per annum, which interest shall be paid together with the Put Amount. 7.4 ANTIDILUTION PROVISIONS. The percentage of Common Stock for which the Warrants may be exercised shall be adjusted as set forth in the Warrants in order to preserve the relative position of the holder of the Warrants vis-a-vis the percentage of the issued and outstanding shares of Common Stock which such holder may acquire upon exercise of the Warrants. 7.5 REGISTRATION. Pursuant to the terms of the Registration Rights Agreement, the Investors shall have and be entitled to (i) three demand and (ii) unlimited piggyback registrations for shares of Common Stock issuable upon exercise of the Warrants. The Investors' demand registration rights will have preference over other demand registration rights granted by the Company (with the exception of any such right granted to Electra pursuant to the Electra Securities Agreement, with which 32 the right of the Investors hereunder shall rank pari passu; PROVIDED that Electra shall have amended the Electra Securities Agreement to provide that such right of Electra shall rank pari passu with that of the Investors hereunder), and the Investors' piggyback registration rights will be pro rata with any other holders of capital stock of the Company participating in such registration, to the extent and as provided in the Registration Rights Agreement. 7.6 VOTING. To the extent permitted by applicable law, the Warrants shall entitle the holders thereof to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of the Warrants on any matters upon which the holders of Common Stock are entitled to vote. 8. MISCELLANEOUS 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made herein shall survive the Closing (i) with respect to the representations and warranties of the Company set forth in Section 2.20, until the closing of an underwritten public offering, (ii) with respect to the representations and warranties of the Company set forth in Section 2.14, until three months after the expiration of the applicable statute of limitations with respect to the subject matter thereof, and (iii) with respect to all other representations and warranties of any party hereunder, for a period of two (2) years after the Closing Date. 8.2 COSTS AND EXPENSES; TRANSFER TAXES. Whether or not the transactions contemplated by this Agreement are consummated, (a) the Company shall pay all fees and expenses incurred by, or on behalf of, it and (b) the Company shall promptly reimburse the Investors for their reasonable out-of-pocket expenses incurred in connection with this Agreement and the transactions contemplated hereby, including without limitation, the reasonable fees and expenses of their legal counsel, accountants and advisors. The Company shall pay all transfer taxes and charges attributable to the transfer of the Securities to the Investors. 8.3 CONFIDENTIALITY; PRESS RELEASES. (a) Each Investor severally agrees that all information and documents gained by such Investor and its directors, officers, employees, agents, representatives, consultants or affiliates pursuant to such Investor's investigations of the Company and its Subsidiaries have been and shall be kept confidential by such Investor and will not be used by such Investor or its directors, officers, employees, agents, representatives, consultants or affiliates for any purpose other 33 than in connection with such Investor's investment in the Company or as required by law. (b) The parties hereto agree that no party shall issue or cause publication of any press release or other announcement or public communication with respect to this Agreement, the Shareholders Agreement, the Registration Rights Agreement or the transactions contemplated hereby or thereby without the consent of the others, which consent shall not unreasonably be withheld; provided that nothing herein shall prohibit any party from issuing or causing publication of any such press release, announcement or public communication to the extent that such action is required by law. 8.4 PARTIES IN INTEREST. All the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by, only the parties hereto; PROVIDED, HOWEVER, that the parties hereto may enforce the provisions of Section 6 hereof on behalf of their respective Investor Indemnitees and Company Indemnitees. In no event may either party assign either its rights or obligations hereunder without the written agreement of the other party. 8.5 EXHIBITS AND SCHEDULES. The Exhibits and Schedules to this Agreement are part of the Agreement and shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth in full herein. 8.6 HEADINGS. The headings of the Sections of this Agreement have been inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. 8.7 AMENDMENTS, WAIVERS, ETC. Neither this Agreement nor any term hereof may be amended except by an instrument in writing which refers to this Agreement and is executed by the Company and each Investor whose rights are affected thereby, and neither this Agreement nor any term hereof may be released, waived or discharged in any manner except by an instrument in writing which refers to this Agreement and is executed by the party against which such release, waiver or discharge is asserted. 8.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE STATE OP NEW YORK. 8.9 NOTICES. Any notice, demand or request required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed to have been duly given on the earlier of (a) the date actually received by the party in question, by whatever means and however addressed, or (b) the date received if sent by telecopy, or on the date of personal delivery if delivered by hand, or on the date signed for if sent 34 by an overnight delivery service, to the following addresses, or to such other address as any party may request by notifying the other parties hereto: (a) If to the Company: DeCrane Aircraft Holdings, Inc. Attention: President 2201 Rosecrans Avenue El Segundo, California 90245 Telephone: (310) 536-0444 Telecopy: (310) 536-0257 DeCrane Aircraft Holdings, Inc. Attention: Chief Executive Officer 155 Montrose West Avenue, Suite 210 Copley, OH 44321 Telephone: (216) 668-3061 Telecopy: (216) 668-2518 with a copy to: Spolin & Silverman Attention: Stephen A. Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Telecopy: (310) 576-1221 Telephone: (310) 576-4844 (b) If to Nassau Capital or NAS: c/o Nassau Capital L.L.C. Attn: Jonathan Sweemer 22 Chambers Street Princeton, New Jersey 08542 Telephone: (609) 924-3555 Telecopy: (609) 924-8887 with a copy to: Simpson Thacher & Bartlett Attention: George R. Krouse, Jr., Esq. 425 Lexington Avenue New York, New York 10017 Telephone: (212) 455-2000 Telecopy: (212) 455-2502 The failure of any party to deliver any notice to any of the above persons specified to receive copies of notices, demands or requests shall not limit the effectiveness of any notice given in accordance herewith to the Company or any Investor. The foregoing shall not preclude the effectiveness of actual written notice actually received by any party delivered by any means other than those specified above. 35 8.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.11 SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances will not be affected thereby and may be enforced to the greatest extent permitted by law. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ------------------------------------- Name: Title: NASSAU CAPITAL PARTNERS L.P. By: NASSAU CAPITAL L.L.C. General Partner By: ------------------------------------- Name: Title: NAS PARTNERS I L.L.C. By: ------------------------------------- Name: Title: 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------- Name: Title: NASSAU CAPITAL PARTNERS L.P. By: NASSAU CAPITAL L.L.C. General Partner By: /s/ John G. Quigley ------------------------------------- Name: John G. Quigley Title: Member NAS PARTNERS I L.L.C. By: /s/ John G. Quigley ------------------------------------- Name: John G. Quigley Title: Member EX-10.24 24 EXHIBIT 10.24 EXHIBIT 10.24 SECURITIES PURCHASE AGREEMENT, DATED NOVEMBER 2, 1994 AS AMENDED ON FEBRUARY 20, 1996, AMONG REGISTRANT, ELECTRA INVESTMENT TRUST P.L.C. AND ELECTRA ASSOCIATES, INC. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ DeCRANE AIRCRAFT HOLDINGS, INC. ----------------------------- ----------------------------- SECURITIES PURCHASE AGREEMENT ----------------------------- ----------------------------- 12% Senior Subordinated Notes due December 31, 2001 ($7,000,000) Warrants to Purchase Shares of Common Stock (Initially Equal on an Aggregate Basis to 15% of the Fully-Diluted Common Stock, Subject to Adjustment in Certain Events) Dated as of November 2, 1994 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ TABLE OF CONTENTS (Not Part of Agreement) ---------------- PAGE 1. BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . 1 3. CLOSING OF SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . 2 4. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . 2 4A. OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . 2 4B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT . . . . . . . . . . 3 4C. APPROVALS AND CONSENTS . . . . . . . . . . . . . . . . . . . . 3 4D. PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 3 4E. NO ADVERSE ACTION OR DECISION . . . . . . . . . . . . . . . . 3 4F. MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . 4 4G. PURCHASE PERMITTED BY APPLICABLE LAWS . . . . . . . . . . . . 4 4H. COMPLIANCE WITH SECURITIES LAWS . . . . . . . . . . . . . . . 4 4I. COMPLIANCE WITH AGREEMENTS . . . . . . . . . . . . . . . . . . 4 4J. FINANCING FEE AND OTHER FEES AND EXPENSES . . . . . . . . . . 5 4K. TERMS OF SENIOR FINANCING ACCEPTABLE . . . . . . . . . . . . . 5 4L. PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . 5 4M. INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . . 5 4N. SHAREHOLDERS AGREEMENT . . . . . . . . . . . . . . . . . . . . 5 4O. REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . 5 4P. SUBORDINATION TO NOTES . . . . . . . . . . . . . . . . . . . . 5 4Q. MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 5 4R. INFORMATION AND MATERIALS . . . . . . . . . . . . . . . . . . 5 5. PREPAYMENTS AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . 5 5A. REQUIRED PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . 6 5B. OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . 6 5C. NOTICE OF OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . . 6 5D. PARTIAL PREPAYMENTS PRO RATA . . . . . . . . . . . . . . . . . 6 5E. RETIREMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . 6 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 7 6A. FINANCIAL STATEMENTS AND OTHER REPORTS . . . . . . . . . . . . 7 6B. INSPECTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . 10 6C. COVENANT TO SECURE NOTES EQUALLY . . . . . . . . . . . . . . . 11 6D. MAINTENANCE OF PROPERTIES; INSURANCE . . . . . . . . . . . . . 11 6E. CORPORATE EXISTENCE, ETC . . . . . . . . . . . . . . . . . . . 12 6F. PAYMENT OF TAXES AND CLAIMS . . . . . . . . . . . . . . . . . 12 (i) 6G. COMPLIANCE WITH LAWS, ETC . . . . . . . . . . . . . . . . . . 12 6H. BOARD MEMBER; ATTENDANCE AT BOARD MEETINGS . . . . . . . . . . 12 6I. SECURITIES MATTERS . . . . . . . . . . . . . . . . . . . . . . 13 6J. RESERVATION OF SHARES . . . . . . . . . . . . . . . . . . . . 13 6K. HART-SCOTT FILINGS . . . . . . . . . . . . . . . . . . . . . . 13 6L. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 13 6M. MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6N. INTERCOMPANY NOTE . . . . . . . . . . . . . . . . . . . . . . 14 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 14 7A. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . 14 7B. RESTRICTIONS ON DEBT . . . . . . . . . . . . . . . . . . . . . 14 7C. RESTRICTIONS ON SALES, MERGERS AND CONSOLIDATIONS . . . . . . 15 7D. RESTRICTIONS ON LIENS . . . . . . . . . . . . . . . . . . . . 15 7E. RESTRICTIONS ON DIVIDENDS AND REPURCHASES . . . . . . . . . . 17 7F. RESTRICTIONS ON TRANSACTIONS WITH CERTAIN PARTIES . . . . . . 17 7G. RESTRICTIONS ON INVESTMENTS . . . . . . . . . . . . . . . . . 18 7H. RESTRICTIONS ON SALE AND LEASEBACK TRANSACTIONS . . . . . . . 18 7I. RESTRICTIONS ON SUBSIDIARIES . . . . . . . . . . . . . . . . . 18 7J. ACTION AFFECTING PAYMENTS ON NOTES . . . . . . . . . . . . . . 18 7K. NO AMENDMENT OF CHARTER OR BY-LAWS . . . . . . . . . . . . . . 18 7L. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . . 19 8. SUBORDINATION OF THE NOTES . . . . . . . . . . . . . . . . . . . . 20 9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9A. INDEMNIFICATION BY COMPANY . . . . . . . . . . . . . . . . . . 23 9B. INDEMNIFICATION BY PURCHASERS . . . . . . . . . . . . . . . . 23 9C. PROCEDURES UNDER INDEMNIFICATION . . . . . . . . . . . . . . . 23 10. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 24 10A. DEFAULT; ACCELERATION . . . . . . . . . . . . . . . . . . . . 24 10B. RESCISSION OF ACCELERATION . . . . . . . . . . . . . . . . . . 26 10C. NOTICE OF ACCELERATION OR RESCISSION . . . . . . . . . . . . . 27 10D. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 27 11. REPRESENTATIONS BY THE COMPANY . . . . . . . . . . . . . . . . . . 27 11A. ORGANIZATION; CORPORATE AUTHORITY . . . . . . . . . . . . . . 27 11B. BUSINESS; FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 28 11C. CAPITAL STOCK AND RELATED MATTERS . . . . . . . . . . . . . . 29 11D. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 29 11E. OUTSTANDING DEBT . . . . . . . . . . . . . . . . . . . . . . . 29 11F. TITLE TO PROPERTIES . . . . . . . . . . . . . . . . . . . . . 30 11G. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 11H. CONFLICTING AGREEMENTS AND OTHER MATTERS . . . . . . . . . . . 30 11I. PATENTS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . 31 11J. OFFERING OF SECURITIES . . . . . . . . . . . . . . . . . . . . 31 (ii) 11K. BROKER'S OR FINDER'S COMMISSIONS . . . . . . . . . . . . . . . 31 11L. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . 32 11M. INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . . . . 32 11N. PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . . . . . . . . 32 11O. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT . . . . . . . . . 33 11P. GOVERNMENTAL CONSENTS, ETC . . . . . . . . . . . . . . . . . . 33 11Q. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . . 33 11R. EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . 35 11S. MATERIAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 35 11T. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . 35 11U. PRODUCTS LIABILITY . . . . . . . . . . . . . . . . . . . . . . 38 11V. SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 12. REPRESENTATIONS BY THE PURCHASERS . . . . . . . . . . . . . . . . . 39 12A. ORGANIZATION, AUTHORIZATION, ETC . . . . . . . . . . . . . . . 39 12B. PURCHASE FOR INVESTMENT . . . . . . . . . . . . . . . . . . . 39 12C. SOURCE OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . 39 13. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 14. GUARANTEE OF NOTES AND OTHER OBLIGATIONS . . . . . . . . . . . . . 53 14A. OBLIGATIONS GUARANTEED . . . . . . . . . . . . . . . . . . . . 53 14B. OBLIGATIONS UNCONDITIONAL . . . . . . . . . . . . . . . . . . 54 14C. WAIVERS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . 55 14D. OBLIGATIONS UNIMPAIRED . . . . . . . . . . . . . . . . . . . . 55 14E. WAIVER OP SUBROGATION, ETC . . . . . . . . . . . . . . . . . . 56 14F. RESCISSION OF PAYMENT . . . . . . . . . . . . . . . . . . . . 56 14G. ELECTION TO PERFORM OBLIGATIONS . . . . . . . . . . . . . . . 56 14H. RIGHTS OF CONTRIBUTION . . . . . . . . . . . . . . . . . . . . 56 14I. LIMITATION ON CORY GUARANTEE . . . . . . . . . . . . . . . . . 58 14J. LIMITATION ON KERNER LIABILITY . . . . . . . . . . . . . . . . 58 14K. LIMITATION ON GUTERMANN LIABILITY . . . . . . . . . . . . . . 58 14L. GENERAL LIMITATION ON GUARANTEES . . . . . . . . . . . . . . . 58 14M. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 15. ADVISORY FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 16. WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 16A. TERM; EXERCISE . . . . . . . . . . . . . . . . . . . . . . . . 59 16B. SERIES OF WARRANTS AND TRIGGERING EVENT . . . . . . . . . . . 59 16C. PUT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 16D. PENALTY WARRANTS . . . . . . . . . . . . . . . . . . . . . . . 62 16E. ANTIDILUTION PROVISIONS . . . . . . . . . . . . . . . . . . . 62 16F. REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . 62 16G. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 17A. PAYMENTS WITH RESPECT TO SECURITIES . . . . . . . . . . . . . 62 17B. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 (iii) 17C. AMENDMENTS, CONSENTS AND WAIVERS . . . . . . . . . . . . . . . 64 17D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES AND WARRANTS . . . . . . . . . . . . . . . . . . . . . . 64 17E. PERSONS DEEMED OWNERS; PARTICIPATIONS . . . . . . . . . . . . 65 17F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 66 17G. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . 66 17H. CERTAIN RELATIONSHIPS . . . . . . . . . . . . . . . . . . . . 66 17I. DISCLOSURE TO OTHER PERSONS . . . . . . . . . . . . . . . . . 66 17J. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 17K. DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . 67 17L. SATISFACTION REQUIREMENT . . . . . . . . . . . . . . . . . . . 67 17M. GOVERNING LAW; JURISDICTION . . . . . . . . . . . . . . . . . 68 17N. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 68 EXHIBITS: EXHIBIT 1(a) -- Form of Notes EXHIBIT 1(b) -- Form of Warrants EXHIBIT 4A -- Form of Opinion of Baker & Hostetler EXHIBIT 4L -- Form of Articles of Incorporation EXHIBIT 4N -- Amended and Restated Shareholders Agreement EXHIBIT 4O -- Amended and Restated Registration Rights Agreement EXHIBIT 8(a) -- Form of Agent's Certificate SCHEDULES: SCHEDULE 4E -- Adverse Proceedings SCHEDULE 7A(i) -- Leverage Ratio SCHEDULE 7A(ii) -- EBITDA Ratio SCHEDULE 7A(iii) -- Net Worth SCHEDULE 7A(iv) -- Fixed Charges Ratio SCHEDULE 7D -- Liens SCHEDULE 7F -- Transactions With Certain Parties SCHEDULE 11C -- Capital Stock and Registration Rights SCHEDULE 11D -- Litigation SCHEDULE 11E -- Debt SCHEDULE 11H -- Conflicting Agreements SCHEDULE 11I -- Intangible Rights SCHEDULE 11J -- Offerings of Securities SCHEDULE 11R -- Employee Matters SCHEDULE 11S -- Material Agreements SCHEDULE 11T -- Environmental Matters SCHEDULE 17A -- Purchasers' Wire Transfer Instructions (iv) SECURITIES PURCHASE AGREEMENT, dated as of November 2, 1994 (this "Agreement"), by and among DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio Corporation (the "Company"), ELECTRA INVESTMENT TRUST P.L.C., a corporation organized under the laws of England ("EIT"), and ELECTRA ASSOCIATES, INC., a Delaware corporation ("Associates" and, together with EIT, the "Purchasers"). Capitalized terms used in this Agreement are defined in paragraph 13 hereof. WHEREAS, the Purchasers desire, upon the terms and subject to the conditions set forth herein, to purchase from the Company the Securities (as hereinafter defined); and WHEREAS, the Company desires, upon the terms and subject to the conditions set forth herein, to sell the Securities to the Purchasers. NOW, THEREFORE, the parties hereto agree as follows: 1. BACKGROUND. In order to provide funds for the expansion and operation of its business, the Company has authorized the issuance and delivery of: (i) its senior subordinated notes, substantially in the form of Exhibit 1(a) hereto (herein, together with any such notes which may be issued pursuant to any provision of this Agreement and any such notes which may be issued in substitution or exchange therefor, the "Notes"), in the aggregate principal amount of $7,000,000, to be dated the date of issue thereof (the "Issue Date"), to mature December 31, 2001, and to bear interest on the unpaid balance thereof from the Issue Date until the principal thereof shall become due and payable at the rate of 12% per annum, payable semi-annually in cash in arrears; and (ii) warrants, substantially in the form of Exhibit 1(b) hereto (herein, together with any such warrants which may be issued pursuant to any provision of this Agreement or any provision contained in the warrants and any such warrants which may be issued in addition to or in substitution or exchange therefor, the "Warrants"), to purchase for a price of $0.01 per share certain shares of the Company's common stock, without par value (the "Common Stock"). The Notes and the Warrants, and any other security of the Company issued to the Purchasers in addition to or in substitution or exchange therefor, are referred to herein as the "Securities." 2. PURCHASE AND SALE OF SECURITIES. Upon the terms and subject to the conditions set forth herein, the Company hereby agrees to sell to the Purchasers, and the Purchasers hereby agree to purchase from the Company, the following: (i) one or more Notes, registered in the Purchasers' names or those of the Purchasers' nominees, as the Purchasers shall request, and, subject to paragraph 17D hereof, in such denominations as the Purchasers shall request, in an aggregate principal amount of $7,000,000, at a purchase price of 100% of the aggregate principal amount thereof; and (ii) one or more series of Warrants, registered in the Purchasers' name or those of the Purchasers' nominees, as the Purchasers shall request, to purchase for a price of $0.01 per share that number of shares of Common Stock as shall be initially equal to 15% of the issued and outstanding Common Stock on a Fully Diluted basis, which percentage is subject to adjustment as set forth in this Agreement and in the Warrants. 3. CLOSING OF SALE OF SECURITIES. The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York two Business Days after the date on which all the conditions specified in paragraph 4 hereof shall have been satisfied, or on such other date or at such other place as the Purchasers and the Company may agree (the "Closing Date"). The Company will give the Purchasers five days' notice of the Closing Date and the time of Closing. At the Closing, the Company will deliver to the Purchasers the Notes and Warrants, against payment of the purchase price therefor by transfer in lawful money of the United States of America in immediately available funds to such bank and account as the Company may direct in writing. At the Closing, the Company will pay to Electra Inc., a Delaware corporation ("Electra"), by transfer in lawful money of the United States of America in immediately available funds to such bank and account as Electra may direct in writing, a financing fee in the amount of $140,000 (the "Financing Fee"). If at the Closing the Company shall fail to (i) tender to the Purchasers any of the Securities, (ii) pay to Electra the Financing Fee or (iii) have satisfied any of the closing conditions specified herein, or if such closing conditions shall not have been waived by the Purchasers, the Purchasers shall, at the Purchasers' election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights the Purchasers may have by reason of such failure. 4. CONDITIONS OF CLOSING. The Purchasers' obligation to purchase and pay for the Securities is subject to the satisfaction prior to or at the Closing of the following conditions: 4A. OPINION OF COUNSEL. The Purchasers shall have received from Baker & Hostetler, counsel for the Company, a -2- favorable opinion substantially in the form attached hereto as Exhibit 4A, and covering any other matters incident to the transactions contemplated hereby as the Purchasers may reasonably request, addressed to the Purchasers and dated the Closing Date. To the extent that the opinion referred to above in this paragraph 4A is rendered in reliance upon the opinion of any other counsel, the Purchasers shall have received a copy of such other opinion, or a letter from such other counsel, dated the Closing Date and addressed to the Purchasers, authorizing the Purchasers to rely on such other counsel's opinion. 4B. REPRESENTATIONS AND WARRANTIES: NO DEFAULT. The representations and warranties of the Company contained in this Agreement, and those otherwise made in writing by or on behalf of the Company in connection with the transactions contemplated hereby, shall be true in all material respects when made and at the time of the Closing, except as affected by the consummation of the transactions contemplated hereby; provided, however, that there shall exist at the time of the Closing and after giving effect to such transactions no Default or Event of Default. The Company shall have delivered to the Purchasers an Officers' Certificate, dated the Closing Date, to all such effects. 4C. APPROVALS AND CONSENTS. The Company shall have duly received all authorizations, waivers, consents, approvals, licenses, franchises, permits and certificates (collectively, the "Approvals") by or of all federal, state and local governmental authorities, and all material Approvals by or of all other Persons, necessary or advisable for the issuance of the Securities, and all such Approvals shall be in full force and effect at the time of the Closing. The Company shall have delivered to the Purchasers an Officers' Certificate, dated the Closing Date, to such effect. 4D. PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby, and all documents incident thereto, shall be reasonably satisfactory in form and substance to the Purchasers and their special counsel, and the Purchasers and their special counsel shall have received all counterpart originals or certified or other copies of such documents as they may reasonably request. 4E. NO ADVERSE ACTION OR DECISION. Except as set forth in Schedule 4E attached hereto, there shall be no action, suit, investigation or proceeding pending, or, to the best of the Purchasers' or the Company's knowledge, threatened, against or affecting the Purchasers or the Company, any of the Purchasers' or the Company's properties or rights, or any of the Purchasers' -3- or the Company's Affiliates, officers or directors, before any court, arbitrator or administrative or governmental body which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise affect the transactions contemplated by this Agreement or (ii) questions the validity or legality of any such transactions or seeks to recover damages or to obtain other relief in connection with any such transactions, and, to the best of the Purchasers' or the Company's knowledge, there shall be no valid basis for any such action, proceeding or investigation. 4F. MATERIAL ADVERSE CHANGE. Since December 31, 1993, there has not been or been threatened any material adverse change in the condition (financial or otherwise), assets, properties, operations or prospects of the Company or any of its Subsidiaries, or any condition, event or act which is likely to lead to a material adverse change in the condition, assets, properties, operations or prospects of the Company or any of its Subsidiaries, or which would materially and adversely affect the Company's ability to repay the Notes or the ability of the Subsidiary Guarantors to perform their obligations hereunder. 4G. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Securities shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject the Purchasers to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation. The Purchasers shall have received such certificates or other evidence of compliance as the Purchasers may request. 4H. COMPLIANCE WITH SECURITIES LAWS. The issuance, offering and sale of the Securities under this Agreement shall have complied with all applicable requirements of federal and state securities laws, and the Purchasers shall have received such evidence of compliance as the Purchasers may request. 4I. COMPLIANCE WITH AGREEMENTS. The Company and each of its Subsidiaries are in compliance with all of the material covenants, terms and conditions of all loan documents, shareholder agreements and other material agreements of the Company (including all existing or proposed credit facilities, indentures and the like) which will remain or be outstanding immediately after the Closing Date, and such agreements permit the performance by the Company and its Subsidiaries of all of the obligations and transactions contemplated by this Agreement. The Company shall have delivered to the Purchasers an Officers' Certificate, dated the Closing Date, to such effect. -4- of the principal amount of the Notes being prepaid, together with all accrued and unpaid interest thereon to the date of such prepayment (the "Purchase Price"). 5A. REQUIRED PREPAYMENTS. The Notes shall, at the option of a Significant Holder, become immediately due and payable upon the occurrence of (i) a Change of Control or (ii) an Initial Public Offering. Upon the occurrence of a Change of Control or an Initial Public Offering and notice by such Significant Holder, the Company will pay to each such holder an amount in cash equal to the Purchase Price by transferring immediately available funds to such bank and account therein as shall be designated by such holder, against delivery of the Notes being prepaid. 5B. OPTIONAL PREPAYMENTS. The Notes may be prepaid at the option of the Company, at any time or from time to time, in whole or in part (but, if in part, only in integral multiples of $100,000), by paying to each holder an amount in cash equal to the Purchase Price for the amount of Notes being prepaid by transferring immediately available funds to such bank and account therein as shall be designated by such holder, against delivery of the Notes being prepaid. 5C. NOTICE OF OPTIONAL PREPAYMENTS. The Company shall give each holder of Notes written notice of any prepayment to be made pursuant to paragraph 5B hereof not less than 30 Business Days prior to the proposed prepayment date, specifying such prepayment date and the principal amount of the Notes to be prepaid. The Purchase Price for the Notes specified in such notice shall become due and payable on such prepayment date. 5D. PARTIAL PREPAYMENTS PRO RATA. Upon any partial prepayment of Notes, The principal amount so prepaid shall be allocated to all Notes at the time outstanding in proportion to the respective outstanding principal amounts thereof. 5E. RETIREMENT OF NOTES. The Company shall not prepay, purchase or otherwise retire Notes held by any holder, in whole or in part, directly or indirectly, prior to their stated final maturity, unless the Company shall have offered to prepay, purchase or otherwise retire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of such Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid, purchased or otherwise retired by the Company (or its Subsidiaries or Affiliates) shall not be deemed to be outstanding for any purpose under this Agreement. -6- 6. AFFIRMATIVE COVENANTS. The Company covenants that from and after the date of this Agreement through the Closing and thereafter so long as no Triggering Event has occurred (unless otherwise provided below): 6A. FINANCIAL STATEMENTS AND OTHER REPORTS. For so long as the Purchasers hold any Note, any Warrant exchangeable into at least 5% of the issued and outstanding Common Stock on a Fully Diluted basis, or at least 5% of the issued and outstanding Common Stock on a Fully Diluted basis, the Company will deliver, or cause to be delivered to each Significant Holder: (i) within 30 days prior to the end of each fiscal year, but no earlier than 60 days prior to the end of such fiscal year, a budget (on a monthly basis) for the Company and its Subsidiaries for the following fiscal year (including consolidating and consolidated statements of income, cash flow and balance sheets prepared in accordance with GAAP), in reasonable detail and reasonably satisfactory in form and scope to the Significant Holder; (ii) as soon as available and in any event within 30 days after the end of each month, consolidating and consolidated statements of income and cash flow of the Company and its Subsidiaries for such month and for the period from the beginning of the current fiscal year to the end of such month and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such period and, beginning in fiscal year 1995, setting forth, in each case, in comparative form, figures for the corresponding month and period in the preceding fiscal year and the budget for such month and for the period from the beginning of the current fiscal year to the end of such month, all in reasonable detail and reasonably satisfactory in form and scope to the Significant Holder and certified by an authorized financial officer of the Company as fairly presenting in all material respects the financial condition and results of operation of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP; (iii) only after the occurrence of an Initial Public Offering, or if the Company prepares such statements in the ordinary course, as soon as practicable and in any event within 45 days after the end of each fiscal quarter of the Company, consolidating and consolidated statements of income and cash flow of the Company and its Subsidiaries for such quarter and for the period from the beginning of the current fiscal year to the end of such quarter and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, setting forth, in each case, in comparative form, figures for the -7- corresponding quarter in the preceding fiscal year and the budget for such quarter, all in reasonable detail and satisfactory in form and scope to the Significant Holder, and certified by an authorized financial officer of the Company as fairly presenting in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP; (iv) as soon as available and in any event within 90 days after the end of each fiscal year, consolidating and consolidated statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, and the related consolidating and consolidated balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, setting forth, in each case, in comparative form, corresponding consolidated and consolidating figures from the preceding fiscal year, all in reasonable detail and reasonably satisfactory in form and scope to the Significant Holder, and accompanied (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing (which shall be generally recognized as one of the "Big Six" independent public accounting firms), which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of an authorized financial officer of the Company, which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with GAAP, consistently applied, as at the end of, and for, such fiscal year; (v) promptly upon transmission thereof to the shareholders of the Company generally or to any other security holder of the Company, including, without limitation, any holder of Senior Debt, copies of all financial statements, financial analyses, notices, certificates (including, without limitation, the Compliance Certificate to be furnished under the Credit Agreement), annual reports and proxy statements so transmitted; (vi) promptly upon receipt thereof, a copy of each other report submitted to the Company or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit of the books of the Company or -8- any of its Subsidiaries made by such accountants, or any management letters or similar document submitted to the Company or any of its Subsidiaries by such accountants; (vii) together with each delivery of financial statements required by clauses (iii) and (iv) above, an Officers' Certificate stating that the signers have reviewed the terms of this Agreement, the Notes and the Warrants, and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the fiscal period covered by such financial statements, and that such review has not disclosed the existence, and that the signers do not have knowledge of the existence, as at the date of such Officers' Certificate, of any condition or event which would constitute a Default or Event of Default or, if, any such condition or event exists, specifying the nature and period of existence thereof and what action the Company has taken or is taking or proposes to take with respect thereto; (viii) together with each delivery of consolidated financial statements required by clause (iv) above, a certificate of the independent public accountants giving the report thereon, but only if, in making the audit of such financial statements, such accountants have obtained knowledge of any Default or Event of Default, specifying in such certificate the nature and period of existence thereof; provided, that such accountants shall not be liable by reason of their failure to obtain knowledge of any Default or Event of Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards; (ix) promptly upon any Responsible Officer of the Company obtaining knowledge (a) of any condition or event which constitutes a Default or Event of Default, (b) that the holder of any Note has given any notice or taken any other action with respect to a claimed Default or Event of Default under this Agreement, (c) of any condition or event which, in the opinion of management of the Company would have a material adverse effect on the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company and its Subsidiaries, taken as a whole (other than conditions or events applicable to the economy as a whole), (d) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed Default or event or condition of the type referred to in clause (ii) of paragraph 10A hereof, or (e) of the institution of any litigation involving claims against the Company in an amount equal to or greater than $100,000 with respect to any single cause of action (unless the Company reasonably believes such litigation is -9- without merit and will not be determined adversely to the Company) or of any adverse determination in any litigation involving a potential liability to the Company equal to or greater than $100,000 with respect to any single cause of action (unless such litigation is defended by an insurance carrier without any reservation of rights and is reasonably expected to be fully covered by a creditworthy insurer), an Officers' Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed Default, event or condition, and what action the Company has taken, is taking or proposes to take with respect thereto; (x) promptly upon any Responsible Officer of the Company or any of its ERISA Affiliates becoming aware of the occurrence of (a) any "reportable event," as such term is defined in section 4043 of ERISA, in connection with any Plan subject to Title IV of ERISA or section 412 of the Code or trust, insurance contract or other funding arrangement maintained or created thereunder or an event requiring the Company or any ERISA Affiliate to provide security to a Plan under section 401(a)(29) of the Code, (b) any "prohibited transaction," as such term is defined in section 4975 of the Code or in section 406 of ERISA in connection with any Plan or any trust, insurance contract or other funding arrangement maintained or created thereunder, or in connection with any Welfare Plan or Multiemployer Plan or (c) the institution of proceedings or the taking or expected taking of action by the PBGC or the Company or any of its ERISA Affiliates to terminate or withdraw or partially withdraw, in connection with any Plan subject to Title IV of ERISA or section 412 of the Code or any Multiemployer Plan or any trust, insurance contract or other funding arrangement maintained or created thereunder, a written notice specifying the nature thereof, what action the Company or any such Subsidiary has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto; (xi) promptly upon any material revision to the budgets referred to in clause (i) above, such monthly budgets, as revised; and (xii) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as such Significant Holder may reasonably request. 6B. INSPECTION OP PROPERTY. For so long as the Purchasers hold any Note, any Warrant exchangeable into at least 5% of the issued and outstanding Common Stock on a Fully Diluted -10- basis, or at least 5% of the issued and outstanding Common Stock on a Fully Diluted basis, the Company will permit any Person designated by any Significant Holder in writing, at such Significant Holder's expense, to visit and inspect any of the properties of the Company and its Subsidiaries (provided that, unless a Default or Event of Default shall have occurred and be continuing, such visits will not occur more frequently than once per calendar quarter), to examine the books and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and to discuss its affairs, finances and accounts with its officers and its independent public accountants, all at reasonable times and upon reasonable prior notice to the Company. 6C. COVENANT TO SECURE NOTES EQUALLY. The Company will, if it or any of its Subsidiaries shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by paragraph 7D hereof (unless prior written consent shall have been obtained pursuant to paragraph 17C hereof), make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured; provided that such security shall not in any way alter the rights of the holders of the Senior Debt or the Seller Note. 6D. MAINTENANCE OF PROPERTIES: INSURANCE. The Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. The Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained, with financially sound and reputable insurers (or, as to workers' compensation or similar insurance, in an insurance fund or by self-insurance authorized by the laws of the applicable jurisdiction), insurance with respect to their respective properties and businesses against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such type and in such amounts as are customarily carried under similar circumstances by such corporations and as are in good faith believed by the Company to be sufficient to prevent the Company or a Subsidiary from becoming a co-insurer within the terms of the policies in question. -11- 6E. CORPORATE EXISTENCE. ETC. The Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect their respective corporate, partnership or other existence, and rights, licenses and franchises material to its business, and will qualify to do business in any jurisdiction where the failure to do so would have a material adverse effect on the business, condition (financial or otherwise), assets, properties or operations of the Company and its Subsidiaries, taken as a whole. 6F. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon them or any of their respective properties or assets or in respect of any of their respective franchises, business income or properties before any penalty or significant interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently pursued and if such accrual or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor. 6G. COMPLIANCE WITH LAWS. ETC. The Company will, and will cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations, and orders of any court or other governmental authority (including, without limitation, those related to environmental or ERISA compliance), the noncompliance with which could have a material adverse effect on the business, condition (financial or otherwise), assets, property, operations or prospects of the Company and its Subsidiaries, taken as a whole. 6H. BOARD MEMBER: ATTENDANCE AT BOARD MEETINGS. (i) For so long as the Purchasers hold any Note, any Warrant exchangeable into at least 5% of the issued and outstanding Common Stock on a Fully Diluted basis, or at least 5% of the issued and outstanding Common Stock on a Fully Diluted basis, at the Purchasers' request, the Company will cause one Person designated by the Purchasers to be included in any list of Persons nominated by management of the Company for election as members of the Board of Directors of the Company (the "Board") and will take all actions reasonably within its power to cause such Person to be elected a member of the Board. Such director -12- will have the right to be a member of the Audit Committee and the Compensation Committee of the Board, or such other committees of the Board performing the functions typically performed by such committees. (ii) The Company will reimburse such director for all costs and expenses (including travel expenses) incurred in connection with such director's attendance at meetings of the Board or any committee of the Board upon which such director serves. The Company will pay such director annual fees and fees for attending Board or committee meetings, if any such fees are paid to directors; provided that the Company may offset amounts paid to Electra as an Advisory Fee against any such director's fees. 6I. SECURITIES MATTERS. To the extent required, the Company will, and will cause each of its Subsidiaries to, comply in all material respects with the reporting requirements of the Securities Act and the Exchange Act, or successor rules thereto or otherwise. The Company will cooperate with each holder of Securities in supplying such information as may be requested by such holder to comply with the Securities Act or Exchange Act, including Rule 144 and Rule 144A, or successor rules thereto or otherwise. 6J. RESERVATION OF SHARES. The Company will reserve and keep reserved at all times sufficient shares of its Common Stock for issuance upon exercise of the Warrants and, upon such exercise, the Company will promptly issue and deliver the shares required to be delivered, and such shares, when issued and delivered, will be validly issued, fully paid and nonassessable. 6K. HART-SCOTT FILINGS. The Company or its "ultimate parent" (as defined in the Hart-Scott-Rodino Act) will promptly prepare and file, or cause to be prepared and filed, any notification or response to any request for additional information required to be filed under the Hart-Scott-Rodino Act and the rules and regulations promulgated thereunder with respect to the acquisition of voting securities of the Company or of any other Person by the Company. 6L. USE OF PROCEEDS. The Company will use the proceeds from the sale and issuance of the Securities to repay existing indebtedness, repay vendor payables, finance working capital and for future acquisition financing. -13- 6M. MANAGEMENT. The Company will enter into an employment agreement with terms satisfactory to the Purchasers with, and will continue the employment of, R. Jack DeCrane, or if such employment is not continued, his replacement shall be acceptable to the Purchasers. 6N. INTERCOMPANY NOTE. The Company will, promptly after the satisfaction in full of its obligations under the Credit Agreement, deliver to the Purchasers the Intercompany Note duly endorsed in blank. Cory agrees to perform all of its obligations under the Intercompany Note and, after the satisfaction in full of its obligations under the Credit Agreement and until payment in full of all amounts payable by the Company under this Agreement, to make all payments under the Intercompany Note directly to the Purchasers for application to, the payment of principal and/or interest in respect of the Notes. 7. NEGATIVE COVENANTS. The provisions of this paragraph 7 shall remain in effect so long as any Note shall remain outstanding. 7A. FINANCIAL COVENANTS. The Company and the Subsidiary Guarantors shall comply in all respects with each of the following financial covenants: (i) LEVERAGE RATIO. The Company and the Subsidiary Guarantors will not permit the Leverage Ratio to exceed the respective ratios at any time during the respective periods set forth on Schedule 7A(i) attached hereto. (ii) EBITDA RATIO. The Company and the Subsidiary Guarantors will not permit the EBITDA Ratio to exceed the respective ratios. at any time during the respective periods set forth on Schedule 7A(ii) attached hereto. (iii) NET WORTH. The Company will not permit its Net Worth to be less than the respective amounts at any time during the respective periods set forth on Schedule 7A(iii) attached hereto. (iv) FIXED CHARGES RATIO. The Company and the Subsidiary Guarantors will not permit the Fixed Charges Ratio to be less than the respective ratios at any time during the respective periods set forth on Schedule 7A(iv) attached hereto. 7B. RESTRICTIONS ON DEBT. The Company will not, and will not permit any of its Subsidiaries to, create, assume, incur, issue, guarantee or otherwise become directly or indirectly liable in respect of, any Debt, except: -14- (i) Debt to the holders of Notes incurred by the Company pursuant to this Agreement; (ii) the Senior Debt, and any refinancing of the Senior Debt (provided that no refinancing of Senior Debt shall have a principal amount greater than the principal amount of Senior Debt at the time outstanding, extend the maturity beyond the original maturity of the Senior Debt as of the date hereof, increase the Applicable Margin (as defined in the Credit Agreement) from that in effect as of the date hereof or affect the time of payment of interest payable with respect to the Senior Debt as of the date hereof or materially adversely affect the rights (taken as a whole) of any holder of the Notes); (iii) additional Senior Debt in an amount not to exceed $1,500,000 (provided that such additional Senior Debt is provided on substantially the terms set forth in and by the lenders party to the Credit Agreement); (iv) the Seller Note; (v) Debt outstanding on the Closing Date and which is listed on Schedule 11E attached hereto; and (vi) Additional Debt incurred or assumed in the ordinary course of business in an aggregate amount outstanding at any time not to exceed $1,100,000. 7C. RESTRICTIONS ON SALES, MERGERS AND CONSOLIDATIONS. The Company will not consolidate or merge with or into, or sell, assign, lease, convey or otherwise dispose of all or substantially all of its properties or assets to, or acquire all or substantially all of the properties or assets of, in one transaction or a series of transactions, another corporation, Person or entity, without the prior written consent of the Purchasers; provided that nothing contained in this paragraph 7C shall prevent (i) a merger of the Company and Tri-Star Holdings, Inc., (ii) the reincorporation in the state of Delaware of the Company or any of its Subsidiaries or (iii) the purchase, sale, assignment, lease, conveyance or other disposition or acquisition of properties or assets by the Company in the ordinary course of its business. 7D. RESTRICTIONS ON LIENS. The Company or any Subsidiary Guarantor will not, and will not permit any of their Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its assets or property of any character (excluding any such property or assets owned by a customer but in -15- the possession of either the Company or any of its Subsidiaries), whether now owned or hereafter acquired, except: (i) Liens existing on the Closing Date and described on Schedule 7D attached hereto; (ii) Liens created in connection with the Senior Debt and Debt permitted by paragraph 7B hereof; (iii) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or the affected Subsidiaries, as the case may be, in accordance with GAAP; (iv) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default hereunder; (v) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (vi) deposits to secure the performance of bids, trade contracts (other than for Debt), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (vii) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of assets or property of any character or minor imperfections in title thereto that, in the aggregate, are not material in amount, and that do not in any case materially detract from the value of such assets or property subject thereto or interfere with the ordinary conduct of the business of the Company or any Subsidiary Guarantor; and (viii) Liens upon real and/or tangible personal property acquired after the date hereof (by purchase, construction or otherwise) by the Company or any Subsidiary Guarantor, each of which Liens either (A) existed on such -16- property before the time of its acquisition and was not created in anticipation thereof or (B) was created solely for the purpose of securing Debt representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such property; provided that (1) no such Lien shall extend to or cover any property of the Company or any Subsidiary Guarantor, other than the property so acquired and improvements thereon and (2) the principal amount of Debt secured by any such Lien shall at no time exceed 80% of the fair market value (as determined in good faith by a senior financial officer of the Company or Subsidiary Guarantor, as appropriate) of such property at the time it was acquired (by purchase, construction or otherwise). The Company, any Subsidiary Guarantor or any of their Subsidiaries will not sign or file in any state or other jurisdiction a financing statement under the Uniform Commercial Code which names the Company or any of its Subsidiaries as debtor, or sign any security agreement authorizing any secured party thereunder to file any such financing statement, if the financing statement would perfect or protect a security interest which the Company or any of its Subsidiaries is not entitled to create, assume, incur or permit to exist under the foregoing provisions of this paragraph 7D. 7E. RESTRICTIONS ON DIVIDENDS AND REPURCHASES. The Company will not, and, except for dividends or other distributions to the Company or to another Subsidiary, will not permit any of its Subsidiaries to, declare or pay any dividends, in cash or otherwise, or make any distributions, to its shareholders or partners, or purchase, redeem or otherwise acquire any of its outstanding Capital Stock, or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any shares of its Capital Stock; provided, however, that notwithstanding the foregoing, (i) Tri-Star Technologies may make those partnership distributions to Alexander Kerner required by the Tri-Star Technologies General Partnership Agreement, as amended, and (ii) Cory may declare and pay dividends provided such dividends are made ratably to its shareholders. 7F. RESTRICTIONS ON TRANSACTIONS WITH CERTAIN PARTIES. Except as set forth in Schedule 7F attached hereto, the Company will not, and will not permit any of it Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any properties or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction") other than in the ordinary course of business, unless such Affiliate Transaction is on terms -17- no less favorable to the Company than would have been obtained in a comparable arms' length transaction by the Company or such Subsidiary with a Person who is not an Affiliate of the Company or such Subsidiary. 7G. RESTRICTIONS ON INVESTMENTS. The Company will not, other than in the ordinary course of business, purchase, acquire or agree to purchase or acquire or invest in the business, property or assets of, or any securities of, any other company or business, except: (i) the Company may invest its excess cash in Cash Equivalents; and (ii) investments permitted by paragraphs 7C, 7E and 7F hereof. 7H. RESTRICTIONS ON SALE AND LEASEBACK TRANSACTIONS. The Company will not sell or transfer any of its properties to anyone with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred, provided that, subject to paragraph 7A hereof, the Company may continue and extend its existing leasing arrangements and may lease, under operating leases, fixtures, equipment and real estate in the ordinary course of business. 7I. RESTRICTIONS ON SUBSIDIARIES. The Company will not permit any of its Subsidiaries to issue any Capital Stock to any Person other than to the Company or another Subsidiary of the Company unless such issuance is at fair market value and the Company's percentage ownership in the Subsidiary is not decreased as a result of such issuance. The Company will not permit any of its Subsidiaries to issue any Debt to any Person other than to the Company or another Subsidiary of the Company except as permitted under paragraph 7B hereof. 7J. ACTION AFFECTING PAYMENTS ON NOTES. The Company will not enter into, become a party to or otherwise become subject to any instrument evidencing or governing the terms of any Debt, or other contract or agreement, or any amendments or modifications of the foregoing, the provisions of which restrict or limit the Company's ability or obligation to make payments on, or which alter or impair the rights of any holder of, the Notes. 7K. NO AMENDMENT OF CHARTER OR BY-LAWS. The Company will not permit any amendment of or modification to its Articles of Incorporation or Code of Regulations, which amendment or -18- modification would alter or impair the rights of any holder of the Notes or the Warrants. 7L. COMPLIANCE WITH ERISA. The Company will not, and will not permit any of its ERISA Affiliates to: (i) engage in any transaction in connection with which the Company or any of its Subsidiaries could be subject to either a material civil penalty assessed pursuant to section 502(i) or (1) of ERISA or a material tax imposed by section 4975 of the Code; (ii) terminate or partially terminate any Plan, or withdraw or partially withdraw from a Multiemployer Plan, in a manner, or take any other action, which in any case may reasonably be expected to result in any material liability of the Company or any of its ERISA Affiliates to the PBGC or to any Multiemployer Plan; (iii) fail to make full payment when due of all amounts which, under the provisions of any Plan, the Company or any of its ERISA Affiliates is required to pay as contributions thereto under section 302 of ERISA and section 412 of the Code, or permit to exist any accumulated funding deficiency, whether or not waived, with respect to any such Plan; (iv) fail to make full payment when due of all amounts which, under the provisions of any Multiemployer Plan or collective bargaining agreement, the Company or any of its ERISA Affiliates is required to pay as contributions thereto. The Company agrees (x) upon the request of any Purchaser to obtain a current statement of withdrawal liability from each Multiemployer Plan to which the Company or any of its ERISA Affiliates contributes or to which the Company or any of its ERISA Affiliates has an obligation to contribute and (y) to transmit a copy of such statement to each Purchaser, so long as such Purchaser or such Purchaser's nominee shall be the holder of any Notes, and to each other Significant Holder, within 15 days after the Company receives the same; (v) amend or permit an ERISA Affiliate to amend a Plan resulting in an increase in current liability for the plan year such that either the Company or an ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code; or (vi) amend or permit an ERISA Affiliate to adopt or amend a Welfare Plan resulting in an increase in current -19- liability in an amount that is material to the Company or such ERISA Affiliate for the plan year. 8. SUBORDINATION OF THE NOTES. (a) Anything in this Agreement or the Notes to the contrary notwithstanding, the indebtedness evidenced by the Notes, including principal and interest and the Subordinated Liabilities, shall be subordinate and junior in right of payment to the extent set forth in clauses (i) through (vi) below to all Senior Obligations. Without limiting the foregoing: (i) The Purchasers and the holders of the Notes may not exercise any right of offset in respect of obligations owing from the Company or any Subsidiary Guarantor against obligations of the Company or Subsidiary Guarantor hereunder. (ii) In the event (A) of a default in the payment of principal of or interest on any Senior Debt or (B) any Senior Debt is declared immediately due and payable prior to its stated maturity, and the holders of the Notes are given notice by the Company or any holder of Senior Debt of either such event, then no payments may be made by the Company or any Subsidiary Guarantor on the Subordinated Liabilities until such default is cured or such declaration is rescinded. In addition, the holders of the Notes may not take any action under paragraph 10 hereof or initiate any bankruptcy proceeding with respect to the Company or any Subsidiary Guarantor until the earlier of the date on which such default is cured, or such declaration is rescinded by written notice by or on behalf of any holder of Senior Debt or 180 days after the giving of such notice (in each case to the extent the holders of the Notes are permitted to take such action under paragraph 10). (iii) In the event (a) the Company defaults in the performance of its obligations under any of Sections 9.01(a), 9.01(b), 9.01(c), 9.01(h), 9.01(1), 9.04(1), 9.04(6), 9.11, 9.13, 9.14 or 9.17 of the Credit Agreement or there occurs an "event of default" (as defined in the Credit Agreement) under any of Sections 10(b), 10(j), 10(k), 10(m) or 10(n) of the Credit Agreement, and (b) upon receipt by the holders of the Notes of a certificate from the Agent (as defined in the Credit Agreement) substantially in the form attached hereto as Exhibit 8(a), then, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment may be made by the Company or any Subsidiary Guarantor on any of the Subordinated Liabilities during any period of 180 consecutive days after the occurrence of such event and receipt of such certificate; provided that any Advisory Fee payable hereunder during such 180-day period shall accrue during such 180-day period and shall be -20- payable together with the next succeeding semi-annual installment of the Advisory Fee on the date such succeeding semi-annual installment is due; and provided, further, that no more than one such certificate shall be given pursuant to this clause (iii) in any period of 360 consecutive days. In addition, the holders of the Notes may not take any action under paragraph 10 hereof, or initiate any bankruptcy proceeding with respect to the Company or any Subsidiary Guarantor, during such period. (iv) In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceeding, or any receivership proceeding in connection therewith, relative to the Company or any Subsidiary Guarantor, then all principal of and interest on all Senior Obligations shall first be paid in full in cash before any payment on account of principal or interest is made by the Company or any Subsidiary Guarantor upon the Subordinated Liabilities. (v) In any of the proceedings referred to in clause (iv) above, any payment or distribution of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable by the Company or any Subsidiary Guarantor in respect of the Subordinated Liabilities shall be paid or delivered directly to the holders of Senior Debt (or as designated by any holder of Senior Debt) for application in payment thereof in accordance with the priorities then existing among such holders, unless and until all principal of and interest on all Senior Obligations shall have been paid in full. (vi) If any payment or distribution of any character, whether in cash, securities or other property, shall be received by any holder of Notes after such holder has received written notice from the Company or any holder of Senior Debt correctly stating that such payment or distribution would be in contravention of any of the terms of this paragraph 8, and before all the Senior Debt shall have been paid in full, such payment or distribution shall be received in trust for the benefit of the holders of the Senior Debt at the time outstanding in accordance with the priorities then existing among such holders, and shall be paid over or delivered and transferred to the holders of the Senior Debt upon request. (b) The holders of the Notes will prove, enforce and endeavor to obtain payment of the Notes in any reorganization proceeding with respect to the Company or any Subsidiary Guarantor. The holders of the Notes hereby authorize and empower the Agent (as defined in the Credit Agreement) in any reorganization proceeding with respect to the Company or any Subsidiary Guarantor to (i) file a proof of claim on behalf of -21- the holders of the Notes if such holders fail to file proof of their claims prior to twenty (20) days before the expiration of the time period during which such claims must be submitted and (ii) vote claims and otherwise act in such reorganization proceeding on behalf of the holders of the Notes if such holders fail to vote their claims or otherwise act within five (5) Business Days prior to the last date for voting or expressing their consent or disapproval. Upon the failure of any holder of the Notes to file a proof of claim, vote claims or otherwise act in a reorganization proceeding as provided in this paragraph 8(b) {including within the time periods specified herein), the Agent, on behalf of the holders of Senior Debt, is hereby irrevocably authorized and empowered, in its sole and absolute discretion, to make and present for and on behalf of such holder of the Notes such proof of claims against the Company or any Subsidiary Guarantor on account of the Subordinated Liabilities as the holders of the Senior Debt may have deemed expedient or proper and to vote such proofs of claims in any such proceeding. (c) The provisions of this paragraph 8 are for the purpose of defining the relative rights of the holders of Senior Debt, on the one hand, and the holders of the Notes, on the other hand, against the Company and its property, and nothing herein shall impair, as between the Company and the holders of the Notes, the obligation of the Company, which is unconditional and absolute, to pay to the holders of the Notes the principal thereof and interest thereon in accordance with their terms and the provisions hereof and the other obligations under this Agreement, nor, except for the provisions of clause (i) above relating to the taking of action under paragraph 10, shall anything herein prevent the holders of the Notes from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder or under the Notes. Upon payment in full of the Senior Obligations, the holders of the Notes shall be subrogated to the rights of the holders of the Senior Debt to receive payments or distributions of assets of the Company made on the Senior Obligations until the principal of and interest on the Notes and the other obligations under this Agreement shall be paid in full, and, for the purposes of such subrogation, no payments to the holders of Senior Debt of any cash, property, stock or obligations to which the holders of the Notes would be entitled shall, as between the Company, its respective creditors (other than the holders of the Senior Debt) and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Obligations. -22- 9. INDEMNIFICATION. 9A. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify, defend, and hold the Purchasers harmless from and against all claims, demands, losses, liabilities or judgments, including, without limitation, all interest, penalties, fines and other sanctions, and any reasonable costs or expenses in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of or in connection with the breach by the Company or any of its Subsidiaries of any of the representations and warranties set forth herein or failure by the Company or its Subsidiaries to observe, pay or perform any of its or their respective covenants or agreements set forth herein. 9B. INDEMNIFICATION BY PURCHASERS. The Purchasers hereby agree to indemnify, defend, and hold the Company harmless from and against all claims, demands, losses, liabilities or judgments, including, without limitation, all interest, penalties, fines and other sanctions, and any reasonable costs or expenses in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of or in connection with the breach or failure by the Purchasers to observe, pay or perform any of the warranties, representations, covenants or agreements set forth herein. 9C. PROCEDURES UNDER INDEMNIFICATION. In the event that any legal proceedings shall be instituted or that any claim or demand shall be asserted by any person in respect of which payment may be sought by either party from the other party under the provisions of this paragraph 9, the party seeking indemnification (the "Indemnitee") shall promptly cause written notice of the assertion of any claim of which it has knowledge and which is covered by this paragraph 9 to be forwarded to the party from which indemnification is sought (the "Indemnitor"). The Indemnitor shall have the right, at its option and at its expense, to be represented by counsel of its choice and to participate in, or to take exclusive control of, the defense, negotiation and/or settlement of any proceeding, claim or demand which relates to any losses or potential losses indemnified against hereunder; provided, however, that (i) such participation by the Indemnitor shall not be deemed to be an admission of its liability to the Indemnitee or any other claimant and (ii) the Indemnitee may participate in any such proceeding with counsel of its choice and at its own expense. To the extent that the Indemnitor elects not to defend or settle such proceeding, claim or demand, the Indemnitee may in accordance with its good faith business judgment elect reasonably to defend against, settle or otherwise deal with any such proceeding, claim or demand; provided, however, that any such settlement shall be made only -23- with the consent of the Indemnitor (which consent shall not be unreasonably withheld or delayed, and shall be deemed given by the Indemnitor unless the Indemnitor shall notify the Indemnitee of its objection to such settlement and the reasons for such objection by notice given within ten (10) days after such consent shall be requested by the Indemnitee). The parties agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such legal proceeding, claim or demand. After any final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction and the time in which to appeal such final judgment or award shall have expired, or a settlement shall have been consummated, or the Indemnitee and the Indemnitor shall have arrived at a mutually binding agreement with respect to each separate matter indemnified by the Indemnitor, the Indemnitee shall forward to the Indemnitor notice of any sums due and owing by the Indemnitor with respect to such matter and the Indemnitor shall be required to pay all of such sums owing by reason of such judgment, award or settlement to the Indemnitee by wire transfer in immediately available funds within thirty (30) days after the date of such notice. If defendants in any action include both the Indemnitor and the Indemnitee, and the Indemnitee shall have been advised by its counsel that there may be legal defenses available to the Indemnitee which are different from or additional to those available to the Indemnitor, the Indemnitee shall have the right to employ its own counsel in such action, and in such event, the fees and expenses of such counsel shall be borne by the Indemnitor. 10. EVENTS OF DEFAULT. 10A. DEFAULT: ACCELERATION. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal on any Note at its maturity or when otherwise due, or in the payment of any purchase or redemption obligation, or in the payment of interest on any Note when the same shall become due, either by the terms thereof or otherwise as provided herein, and such default shall continue for three (3) or more Business Days after the same shall have become due; or (ii) the Company or any of its Subsidiaries fails to perform or observe any of the financial covenants in paragraph 7A hereof, and such default shall continue unremedied for a period of thirty (30) or more Business Days after written notice thereof to the Company and, for so long as the Senior Debt -24- is outstanding, the Agent (as defined in the Credit Agreement), which written notice shall provide in reasonable detail the calculations relating to such financial covenants; or (iii) the Company or any of its Subsidiaries defaults in any payment of principal of or interest on any Debt in an amount in excess of $250,000 beyond any period of grace provided with respect thereto and the effect of such failure is to cause such Debt to become due prior to any stated maturity; or (iv) any representation or warranty made in writing by or on behalf of the Company in this Agreement or in any writing furnished in connection with or pursuant to this Agreement or in connection with the transactions contemplated by this Agreement shall be false in any material respect on the date as of which made; or (v) the Company fails to perform or observe any provision contained in clause (ix) of paragraph 6A, in paragraphs 6C or 6H(i), or in paragraphs 7B through 7L hereof, and such default shall continue unremedied for a period of thirty (30) or more Business Days after notice thereof to the Company; or (vi) repudiation by any Subsidiary of the Company of its obligations under a Subsidiary Guarantee or a final judicial determination that a Subsidiary Guarantee is not enforceable against any Subsidiary Guarantor in accordance with its terms; or (vii) the Company fails to perform or observe any other material agreement, term or condition contained in this Agreement, and such failure shall not have been remedied within 30 days after such failure shall first have become known to any Responsible Officer of the Company or written notice thereof shall have been received by the Company (regardless of the source of such notice); or (viii) any judgment, order or decree for relief in respect of the Company or any of its Subsidiaries is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution, liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (ix) the Company or any of its Subsidiaries, within the meaning of any Bankruptcy Law: (A) commences a voluntary case or proceeding; (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding; (C) consents to the appointment of a -25- receiver, trustee, custodian, liquidator or similar official for it or for all or substantially all of its property or assets; (D) consents to or acquiesces in the institution of a bankruptcy or insolvency proceeding against it; (E) makes an assignment for the benefit of its creditors or is generally not paying its debts as they become due; (F) takes any corporate action to authorize or effect any of the foregoing; (G) is the subject of any judgment, decree or order entered in any proceeding (1) approving a petition seeking reorganization, arrangement, adjustment or composition, (2) appointing a receiver, trustee, custodian, liquidator or similar official for it or for all or substantially all of its property or assets or (3) ordering its winding-up, dissolution or liquidation, and in each case the judgment, decree or order remains unstayed and in effect for 30 days; or (x) a final judgment (excluding a judgment in a matter listed on Schedule 11D hereto) in an amount not fully covered by insurance in excess of $100,000 is rendered against the Company or any of its Subsidiaries and, within 30 Business Days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 10 days after the expiration of any such stay, such judgment is not discharged; then (a) if such event is an Event of Default specified in clause (viii) or (ix) of this paragraph 10A, all of the Notes at the time outstanding shall automatically become due and payable at par, together with interest accrued thereon; (b) if such event is any ether Event of Default, a Significant Holder of the Notes may, at its option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable at par, together with interest accrued thereon, in each of the cases referred to in clauses (a) and (b) above, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; (c) the Notes will have preference in right of payment to all other subordinated debt of the Company and to any Capital Stock of the Company in the event of any event specified in clause (viii) or (ix) of this paragraph 10A; and (d) if such event is an Event of Default specified in clause (i) of this paragraph 10A, the Company will promptly issue to the Purchasers Penalty Warrants in accordance with the provisions of paragraph 16D hereof. 10B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes shall have been declared immediately due and payable pursuant to paragraph 10A hereof, the Significant Holder may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes, any principal payable -26- with respect to Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal at the rate specified in the Notes, (ii) the Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Defaults and Events of Default, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 17C hereof, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Default or Event of Default or impair any right arising therefrom. 10C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall he declared immediately due and payable pursuant to paragraph 10A hereof, or any such declaration shall be rescinded and annulled pursuant to paragraph 10B hereof, written notice shall forthwith be given thereof by the Significant Holder of the Notes to the holder of each Note at the time outstanding. In addition, whenever any Note shall be declared immediately due and payable pursuant to paragraph 10A hereof, the Significant Holder of the Notes shall give written notice thereof to the Agent (as defined in the Credit Agreement) not less than five (5) Business Days before any such Note becomes due and payable. 10D. OTHER REMEDIES. Subject to the provisions of paragraph 8(i) hereof, if any Default or Event of Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. 11. REPRESENTATIONS BY THE COMPANY. The Company hereby represents, covenants and warrants to the Purchasers as follows: 11A. ORGANIZATION; CORPORATE AUTHORITY. The Company and each of its Subsidiaries, is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and -27- has all requisite corporate or other power and authority to own and operate its properties and to carry on its business. The Company and each of its Subsidiaries has all requisite corporate or other power and authority to enter into and perform all of its obligations under this Agreement and to issue and sell the Notes and Warrants as contemplated hereby. The Company and each of its Subsidiaries is duly qualified and in good standing and duly authorized to do business in each jurisdiction where it is or will be on the Closing Date required so to qualify, except where the failure so to qualify would not have a material adverse effect on its business, condition (financial or otherwise), prospects, assets or properties. 11B. BUSINESS: FINANCIAL STATEMENTS. The Company has furnished the Purchasers with the following financial statements: (i) the audited balance sheets of the Company at December 31, 1993 and December 31, 1992 and the related audited statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993, all reported on by Price Waterhouse, and (ii) the unaudited balance sheet of the Company at August 31, 1994 and the related unaudited statement of operations, stockholders' equity and cash flow for the period ended on such date (collectively, the "Disclosure Documents"). The Disclosure Documents (i) have been prepared in conformity with GAAP applied on a consistent basis and disclose all liabilities, direct and contingent, required to be shown in accordance with such principles and (ii) present fairly the financial position of the Company at the dates indicated and results of operations for the periods indicated. The Disclosure Documents did not, as of their respective dates, and this Agreement does not, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein and herein, in light of the circumstances under which they were made, not misleading. There is no fact (other than facts related to general economic conditions) peculiar to the Company which materially adversely affects or in the future would reasonably be expected to materially adversely affect the business, prospects, condition (financial or otherwise) or operations of the Company which has not been set forth or reflected in this Agreement or the Disclosure Documents. The Company has not sustained since August 31, 1994 any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree which is material to the Company, other than as set forth in the Disclosure Documents. Since August 31, 1994, there has not been any material change in the Capital Stock or long-term or short-term Debt of the Company or in the capitalization of the Company (other than the changes resulting from the transactions -28- contemplated by this Agreement and the Related Agreements) or any material adverse change, or any development which the Company has reasonable cause to believe will involve a prospective material adverse change, in or affecting the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company. 11C. CAPITAL STOCK AND RELATED MATTERS. As of the Closing Date (or other indicated date) and after giving effect to the transactions contemplated hereby the authorized Capital Stock of the Company is as set forth in Schedule 11C attached hereto. Except as set forth in Schedule 11C, the Company has not granted or agreed to grant any rights relating to the registration of its securities under applicable federal and state securities laws, including piggyback rights. 11D. LITIGATION. Except as set forth in Schedule 11D attached hereto, there are no claims, actions, suits, proceedings, labor disputes or investigations in process by or against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened either by a written communication directed to the Company or by an oral communication directed to the Company by a stockholder of the Company, before any federal or state court, arbitrator or governmental authority by or against the Company which, if adversely determined, may reasonably be expected to result in any material adverse change in the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company or in any liability on the part of the Company which would be material to the Company or which, to the best knowledge of the Company, includes a claim against or involving the Company in excess of $100,000 or which questions the validity or legality of or seeks damages in connection with this Agreement or any action taken or to be taken pursuant to this Agreement. There are no outstanding judgments, decrees or orders of any court or governmental authority against the Company which may reasonably be expected to result in any material adverse change in the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company or in any liability on the part of the Company which would be material to the Company. 11E. OUTSTANDING DEBT. Except as set forth in Schedule 11E attached hereto, the Company does not, and each of its Subsidiaries do not, have any outstanding secured or unsecured Debt or commitments for any Debt, other than the Senior Debt and Debt permitted by paragraph 7B hereof, and as of the Closing Date there will exist no default or event of default by the Company or any of its Subsidiaries under the provisions of any instrument evidencing such Debt or of any agreement relating thereto that -29- has or would be expected to have a material adverse effect on the Company or any of its Subsidiaries. 11F. TITLE TO PROPERTIES. The Company and each of its Subsidiaries has good and marketable title to all of its respective properties and assets, free and clear of all Liens other than Liens permitted by paragraph 7D hereof. The Company and each of its Subsidiaries enjoys peaceful and undisturbed possession under all leases necessary in any material respect for the operation of its properties and businesses; and none of such leases contain any unusual or burdensome provisions which might materially affect or impair the operation of such properties and businesses. Except to perfect and protect security interests of the character permitted by paragraph 7D hereof, at the time of the Closing (i) no effective financing statement under the Uniform Commercial Code which names the Company or any of its Subsidiaries as debtor or lessee will be on file in any jurisdiction and (ii) the Company and each of its Subsidiaries will not have signed any effective financing statement or any effective security agreement authorizing any secured party thereunder to file any such financing statement. 11G. TAXES. The Company has filed all tax returns required by law to be filed by it (or obtained valid extensions thereof), and all taxes, assessments and other governmental charges levied upon the Company or any of its properties, assets, income or franchises which are due and payable, other than those presently payable without penalty or interest, have been paid. There are no tax liens upon any assets of the Company. 11H. CONFLICTING AGREEMENTS AND OTHER MATTERS. The Company and each of its Subsidiaries is not a party to any contract or agreement or subject to any restriction which materially and adversely affects its business, condition (financial or otherwise), prospects, assets or properties. Neither the execution or delivery of this Agreement or the Notes or the Warrants, nor the offering, issuance and sale of the Notes or the Warrants, nor fulfillment of or any compliance with the terms and provisions hereof and thereof, will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company pursuant to, the Articles of Incorporation or Code of Regulations of the Company, any award of any arbitrator or any material agreement, instrument, order, judgment, decree, statute, law, rule or regulation to which the Company, or any of its respective property or assets is subject. The Company is not a party to or otherwise subject to any contract or agreement which limits the amounts of, or otherwise -30- imposes restrictions on the incurring of, Debt of the type to be evidenced by the Notes or which contains dividend or redemption limitations on any Capital Stock of the Company, except for this Agreement and as set forth in Schedule 11H attached hereto. 11I. PATENTS, ETC. All patents, trademarks, service-marks, trade names, permits, licenses, franchises or other rights (including industry certificates and approvals and including, without limitation, FAA Supplemental Type Certificate ("STC") approvals) (collectively, "Intangible Rights") owned or held by the Company or any of its Subsidiaries that are material to the business of the Company or any of its Subsidiaries are described on Schedule 11I attached hereto. Except as described on Schedule 11I, all such Intangible Rights are free and clear of any Lien. Nothing has come to the attention of the Company to the effect that (i) any activity in operating the business of the Company or any of its Subsidiaries as presently conducted or as proposed to be conducted may infringe any patent, trademark, service-mark, trade name, copyright, permit, license, franchise or other right owned by any other Person, (ii) there is pending or threatened any claim or litigation against or affecting the Company or any of its Subsidiaries contesting its right to carry on such activities or (iii) there is, or there is pending or proposed, any statute, law, rule, regulation, standard or code which would prevent or inhibit, or substantially reduce the projected revenues of, or otherwise adversely affect the business, condition (financial or otherwise), or operations of, the Company. 11J. OFFERING OF SECURITIES. Except as set forth in Schedule 11J attached hereto, the Company, has not, directly or indirectly, offered any of the Notes or the Warrants or any similar security of the Company, including, without limitation, Common Stock, for sale to, or solicited any offers to buy any such security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person or Persons other than the Purchasers and no more than 10 other investors; and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of any of the Notes to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 11K. BROKER'S OR FINDER'S COMMISSIONS. Except for a fee in the amount of $650,000 (plus expenses totaling not more than $155,000) payable to Alex. Brown & Sons Incorporated, no broker's or finder's fee or commission will be payable by the Company with respect to the issuance and sale of the Notes or the Warrants or the transactions contemplated hereby. -31- 11L. COMPLIANCE WITH LAW. (a) The Company has not received notice of, or citation or summons for, and no complaint has been filed, no penalty has been assessed and no investigation or review is in process or, to the best knowledge of the Company, threatened by any governmental authority with respect to, any violation or alleged violation of any law, regulation, order or other legal requirement, or failure by the Company to have any permit, certificate, license, approval, registration or authorization (including industry certificates and approvals and including, without limitation, STCs) required in connection with the operation of its business, other than where such violation or failure would not reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company. The Company is not in default with respect to any order, writ, judgment, award, injunction or decree of any federal, state or local court or governmental or regulatory authority or arbitrator, domestic or foreign, applicable to or in connection with its business or any of its assets, properties or operations, other than defaults the consequences of which would not reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company. (b) With respect to the operation of its business, the Company possesses and is in compliance with all material permits, certificates, licenses, approvals, registrations and authorizations (including industry certificates and approvals and including, without limitation, STCs) required under all applicable laws, rules and regulations, all of which are in full force and effect, and the business has been conducted and is now being conducted in compliance with all applicable laws, rules, regulations, judgments and orders of the United States and states, counties, municipalities and agencies thereof, including, without limitation, laws, rules and regulations relating to pollution and environmental control, equal employment opportunity, health and safety and zoning, except for such noncompliance which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company. 11M. INVESTMENT COMPANY ACT. The Company is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 11N. PUBLIC UTILITY HOLDING COMPANY ACT. The Company is not a "holding company," or a "subsidiary company" of a -32- "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 11O. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. The Company is not a "United States real property holding corporation," as defined in section 897 of the Code and applicable regulations thereunder. 11P. GOVERNMENTAL CONSENTS, ETC. No consent, approval, authorization, exemption or other action by, or notice to or filing with, any court or administrative or governmental body (or modification to any of the foregoing) which has not been obtained, taken or made is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or thereby or fulfillment of or compliance with the terms and provisions hereof. 11Q. COMPLIANCE WITH ERISA. (a) PROHIBITED TRANSACTIONS. Neither the Company nor any ERISA Affiliate has engaged in a transaction in connection with which the Company could be subject to a material liability for either a civil penalty assessed pursuant to section 502(i) or (1) of ERISA or a tax imposed by section 4975 of the Code. (b) PLAN TERMINATION; MATERIAL LIABILITIES. There has been no termination or partial termination of a Plan or trust, insurance contract or other funding arrangement maintained or created under any Plan, and there has been no withdrawal or partial withdrawal from a Multiemployer Plan, that would give rise to a material liability to the PBGC, or to a Multiemployer Plan, on the part of the Company or an ERISA Affiliate. No material liability to the PBGC has been or is expected to be incurred with respect to any Plan by the Company or an ERISA Affiliate. The PBGC has not instituted proceedings to terminate any Plan with respect to which the Company or an ERISA Affiliate has liabilities. There exists no condition or set of circumstances which presents a material risk of termination or partial termination of any Plan by the PBGC. The Company and each ERISA Affiliate have paid all premiums to the PBGC when due. No condition exists or event or transaction has occurred in connection with any Plan or Multiemployer Plan or Welfare Plan which has resulted and/or will result in the incurrence by the Company or any ERISA Affiliate of any material liability, fine, penalty or tax. (c) ACCUMULATED FUNDING DEFICIENCY. Full payment has been made of all amounts which are required under the terms -33- of each Plan to have been paid or accrued as contributions to such Plan as of the last day of the most recent fiscal year of such Plan ended on or before the date of this Agreement (except such contributions as have not been made but that can be timely made at a later date without penalty in accordance with sections 412 and 4971 of the Code), and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan. Neither the Company nor an ERISA Affiliate has failed to make a required installment under section 412(m) of the Code. (d) RELATIONSHIP OF BENEFITS TO PENSION PLAN ASSETS. The current value of the "benefit liabilities" (as defined in section 4001(a)(16) of ERISA) of each Plan subject to Title IV of ERISA and section 412 of the Code does not exceed the fair market value of the assets of such Plan. Neither the Company nor any ERISA Affiliate is required to provide security to any Plan. No Lien under section 412(n) of the Code or sections 312(f) or 4068 of ERISA has been or is reasonably expected by the Company to be imposed on the assets of the Company or any ERISA Affiliate. The Company and the ERISA Affiliates may cease contributions to or terminate any Plan or Welfare Plan without incurring any material liability. (e) COMPLIANCE WITH ERISA. All Plans which are intended to be "qualified" are "qualified" under section 401(a) of the Code and will have been submitted to the Internal Revenue Service by the end of the current plan year for a determination letter confirming such qualification. All Plans and Welfare Plans contributed to or maintained by the Company or an ERISA Affiliate have been administered substantially in compliance with ERISA and the applicable provisions of the Code. There are no pending issues before the Internal Revenue Service or any court of competent jurisdiction related to the qualification of, or payment of benefits under, any Plan or Welfare Plan. (f) EXECUTION OF AGREEMENTS; PURCHASE AND SALE OF SECURITIES, ETC. The execution and delivery of this Agreement the issue and sale of the Notes and the Warrants and the consummation of the transactions contemplated by this Agreement will not involve any transaction which is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the preceding sentence is made in reliance upon and subject to the accuracy of the Purchasers' representations in paragraph 12C hereof as to the source of funds used to pay the purchase price of the Notes and the Warrants. -34- 11R. EMPLOYEE MATTERS. Except as set forth in Schedule 11R attached hereto, (a) there are no open National Labor Relations Board claims, petitions, proceedings, charges, complaints or notices with respect to the Company, (b) the Company has no labor negotiations in process with any labor union or other labor organization, (c) no labor disputes, including, but not limited to, strikes, slowdowns, picketing or work stoppages or other labor difficulty exist or to the best of the Company's knowledge are threatened, with respect to any employees of the Company, (d) no grievance or arbitration proceeding arising out of or under any collective bargaining agreement relating to the employees of the Company is in process, and to the best knowledge of the Company, no claim thereunder exists, (e) the Company is not experiencing any labor disputes, including but not limited to strikes, slowdowns, picketing or work stoppages with respect to the employees of the Company and (f) no "plant closing" or "mass layoff" has been effectuated by the Company (in each case as defined in the Worker Adjustment and Retraining Notification Act (29 U.S.C. Section 2101, ET SEQ.), as amended). To the best knowledge of the Company, there are no efforts in process by unions to organize any employees of the Company who are not now represented by recognized collective bargaining agents. 11S. MATERIAL AGREEMENTS. The agreements, contracts and other documents listed in Schedule 11S attached hereto comprise all of the material agreements, contracts and other arrangements to which the Company is a party (including, without limitation, contracts or other agreements for the employment or compensation of any officer, director, stockholder, consultant or key employee of the Company, joint venture agreements, shareholder agreements or similar arrangements). 11T. ENVIRONMENTAL MATTERS. The Company and each of its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) have a material adverse effect on the condition (financial or otherwise), assets, properties, operations or prospects of the Company or any of its Subsidiaries (for purposes of this paragraph 11T, a "Material Adverse Effect"). Each of such permits, licenses and authorizations is in full force and effect and the Company and each of its Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable -35- Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not (either individually or in the aggregate) have a Material Adverse Effect. In addition, except as set forth on Schedule 11T attached hereto: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity with respect to any alleged failure by the Company or any of its Subsidiaries to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Company or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials generated by the Company or any of its Subsidiaries. (b) Neither the Company nor any of its Subsidiaries owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) no polychlorinated biphenyls (PCB's) is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (ii) no asbestos or asbestos-containing materials is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iii) there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity -36- established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials have been otherwise Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries, in each case, that would (either individually or in the aggregate) have a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to environmental liability against any Company or any of its Subsidiaries. (d) No Hazardous Material generated by the Company or any of its Subsidiaries has been recycled, treated, stored disposed of or Released by the Company or any of its Subsidiaries at any location other than those listed in Schedule 11T. (e) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company or any of its Subsidiaries and no site or facility now or previously owned, operated or leased by any Company and each of its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (f) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries, and no government action has been taken or is in process that could subject any such site or facility to such Liens and none of the Company or any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. -37- (g) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries and that could result in a Material Adverse Effect have been made available to the Purchasers. 11U. PRODUCTS LIABILITY. Except for lawsuits, claims (asserted or unasserted), damages and expenses adequately covered by the Company's insurance, there are no (i) liabilities of the Company, fixed or contingent, asserted or, to the best knowledge of the Company, unasserted, with respect to any product liability or any similar claim that relates to any product sold by the Company to others prior to the Closing Date, or (ii) liabilities of the Company, fixed or contingent, asserted or, to the best knowledge of the Company, unasserted, with respect to any claim for the breach of any express or implied product warranty or any other similar claim with respect to any product sold by the Company to others prior to the Closing Date, other than standard warranty obligations (to replace, repair or refund) made by the Company in the ordinary course of the conduct of its business to purchasers of its products, and except, in each case, where such liabilities do not or would not reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, properties, operations or prospects of the Company. 11V. SOLVENCY. As of and at the Closing, both immediately prior to and following the consummation of the transactions contemplated by this Agreement, the Related Agreements and the Credit Agreement, the Company, each Subsidiary Guarantor and each other Subsidiary of the Company: (a) is able to pay its debts as they become due; (b) owns property whose fair saleable value is greater than the amount required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities); (c) has adequate capital to carry on its business, and has capital which is not unreasonably small for the businesses in which it is engaged or proposes to engage; and (d) is making no transfer of property and is incurring no obligation in connection with the transactions contemplated by this Agreement, the Related Agreements and the -38- Credit Agreement, with the intent to hinder, delay or defraud any of the present or future creditors of such company. 12. REPRESENTATIONS BY PURCHASERS. The Purchasers hereby represent, covenant and warrant to the Company as follows: 12A. ORGANIZATION, AUTHORIZATION, ETC. The Purchasers are duly organized, validly existing and in good standing under the laws of their respective jurisdiction of organization, having the corporate power and authority to execute, deliver and perform this Agreement and have taken all action required by law, the Purchasers' governing documents or otherwise to authorize such execution, delivery and performance. Such execution and delivery do not, and the consummation of the transactions contemplated hereby will not, violate any provision of the Purchasers' governing documents or any provision of any mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree to which the Purchasers are a party or by which the Purchasers are bound, and this Agreement is a valid and binding obligation of the Purchasers enforceable in accordance with its terms. 12B. PURCHASE FOR INVESTMENT. The Securities to be acquired hereunder and any shares of Common Stock issuable upon the exercise thereof will be acquired by the Purchasers for investment for the Purchasers' own accounts and not with a view to the resale or distribution of any part thereof within the meaning of the Securities Act. Upon the issuance of the Common Stock issuable upon exercise of the Warrants, the Purchasers will represent to the Company that the Purchasers have acquired such shares for investment for the Purchasers' own accounts and not with a view to the resale or distribution of any part thereof within the meaning of the Securities Act. 12C. SOURCE OF FUNDS. The source of funds is not an employee benefit plan, as defined in Section 3(3) of ERISA. 13. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the meanings specified below with respect thereto: "ADDITIONAL WARRANTS" shall mean the warrants issued under (a) the Common Stock Purchase Warrant, dated as of the date hereof, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (b) the Common Stock Purchase Warrant, dated as of the date hereof, of the Company in favor of The Provident Bank, and (c) the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, -39- among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries. "ADVISORY AGREEMENT" shall mean that certain Advisory Agreement, dated as of the date hereof, between the Company and Electra. "ADVISORY FEE" shall have the meaning specified in paragraph 15. "AFFILIATE" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with, such Person. The term Affiliate shall include, without limitation, (i) any director or executive officer of such Person or of an Affiliate of such Person, (ii) a parent, spouse or child (a "relative") of such director or executive officer, (iii) any group, acting in concert, of such director, executive officer or relative (a "group"), (iv) any Person controlled by any such director, executive officer, relative or group, and (v) any Person or group which beneficially owns or holds 5% or more of any class of voting securities or a 5% or greater equity or profits interest in such Person. The term Affiliate shall not include (a) the Purchasers and any Transferee that might be deemed to be an Affiliate solely by reason of its ownership of the Securities (or any other securities issued in exchange for any such Securities) or by reason of its benefiting from any agreements or covenants of the Company or its Subsidiaries contained in or contemplated by this Agreement or (b) with respect to the Company and its Subsidiaries, Brian Gamberg. The term control (including, with correlative meanings, controlling, controlled by or under common control with) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. "AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT" shall mean that certain Second Amended and Restated Registration Rights Agreement, dated as of the date hereof, between the Company, the Purchasers and each other Person to which the Company has granted registration rights for any of its securities. "AMENDED AND RESTATED STOCKHOLDERS AGREEMENT" shall mean that certain Second Amended and Restated Stockholders Agreement, dated as of the date hereof, between the Company, the Purchasers and certain other shareholders of the Company. -40- "ASSOCIATES" shall have the meaning specified in the first paragraph hereof. "BANC ONE WARRANT" shall mean the warrants issued under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries. "BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 10A. "BUSINESS DAY" shall mean any day which is not a Saturday or a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CAPITAL EXPENDITURES" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of liabilities under Capitalized Leases incurred during such period) made by the Company or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. "CAPITAL STOCK" shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock. "CAPITALIZED LEASE" shall mean any lease obligation which, under GAAP, is or will be required to be capitalized on the books of the Company or its Subsidiaries. "CASH EQUIVALENTS" shall mean (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit or eurodollar time deposits having maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications described in clause (iii) above, and (v) commercial paper of any Person that is not a Subsidiary or an Affiliate of the Company, having the highest rating obtainable from Moody's Investors Service, Inc. or -41- Standard & Poor's Corporation, and maturing within six months after the date of acquisition. "CASH FLOW" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) EBITDA for such period minus (b) cash taxes based on or measured by income that are paid during such period (including penalties with respect thereto and interest thereon) minus (c) Capital Expenditures made during such period to the extent permitted hereunder. "CHANGE OF CONTROL" shall mean the occurrence of any of the following events: (a) the sale, lease or other disposition of all or substantially all of the Capital Stock or assets of the Company (other than in an Initial Public Offering), or a merger or consolidation of the Company with or into another entity in a transaction in which the shareholders of the Company own less than 50% of the voting securities of the surviving or resulting corporation immediately after such merger or consolidation; or (b) any liquidation, dissolution or winding up of the Company. "CLOSING" shall have the meaning specified in paragraph 3. "CLOSING DATE" shall have the meaning specified in paragraph 3. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "COMMISSION" shall mean the United States Securities and Exchange Commission and any successor agency having similar powers. "COMMON STOCK" shall have the meaning specified in paragraph 1(ii). "CORY" shall mean Cory Components, Inc., a California corporation. "CREDIT AGREEMENT" shall mean that certain Credit Agreement, dated as of the date hereof, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent), as amended from time to time. -42- "CURRENT LIABILITIES" shall mean, at any date of determination, the total liabilities of the Company (including tax and other proper accruals) which may properly be classified as current liabilities in accordance with GAAP. "DEAL COSTS" shall mean all costs and expenses, up to $2,500,000, incurred by the Company in connection with the transactions contemplated by this Agreement and the Credit Agreement, including (without limitation) the following: (a) fees and expenses paid to the Purchasers and Electra and their counsel, (b)fees and expenses paid to the Lender and the Agent (each as defined in the Credit Agreement) and the Lenders' and Agent's counsel, (c) fees and expenses paid to environmental, aerospace industry and other consultants and (d) all other fees, commissions and expenses relating to any of the foregoing (including, without limitation, investment banking, independent accountants, depository, brokerage, publicity, legal, arrangement and commitment fees, commissions and expenses). "DEBT" shall mean, as to any Person (calculated for any Person without duplication): (i) all liabilities, whether contingent or otherwise and whether recourse is limited or otherwise, for borrowed money or for the deferred purchase price of property or services (but excluding trade expenses and accounts payable incurred in the ordinary course of business and which are not overdue by more than 90 days unless being contested in good faith), including obligations under leases which would be treated as Capital Leases; (ii) reimbursement obligations with respect to letters of credit; (iii) any obligation secured by any property or asset of such Person; (iv) any obligation with respect to currency or hedging agreements; and (v) any of the foregoing liabilities which such Person has guaranteed, including, without limitation, the Subsidiary Guarantees; provided that Debt shall not include (a) obligations of the Company with respect to the Warrants and (b) contingent amounts payable by the Company under the Seller Note unless and until such amounts become due and payable in cash. "DEBT SERVICE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all payments of principal of Debt (including, without limitation, the principal component of any payments in respect of Capitalized Leases) scheduled to be made during such period plus (b) all Interest Expense that is payable in cash for such period. "DEFAULT": see "EVENT OF DEFAULT." -43- "DEFERRED NOTE PAYABLE" shall mean all non-cash liabilities and all non-cash expenses arising under the Technical Consulting Agreement (and which are referred to in the Company's balance sheet under the caption "due to/due from former shareholder"). "EBITDA" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP): (a) net income for such period, plus (b) the aggregate amount of depreciation, amortization (including, without limitation, amortization of intangibles and amortization of Deal Costs (to the extent that such Deal Coats do not exceed $2,500,000)), taxes based on or measured by income and Interest Expense for such period, plus (c) any accretion expense with respect to the Warrants and the Additional Warrants (or any other Equity Rights with respect to the Company and its Subsidiaries) for such period, plus (d) any non-cash charges related to the Technical Consulting Agreement, plus (e) any non-cash expense related to any minority interests, plus (f) any non-cash expenses related to foreign currency translation. "EBITDA RATIO" shall mean, at any time, the ratio of (a) all Debt of the Company and its Subsidiaries at such time to (b) EBITDA for the period of four consecutive fiscal quarters most recently ended prior to such time. "EIT" shall have the meaning specified in the first paragraph hereof. "ELECTRA" shall have the meaning specified in paragraph 3 hereof. "ENVIRONMENTAL LAWS" means all federal, state, and local laws, ordinances, rules, regulations, codes, duties under the common law or orders, including, without limitation, any requirements imposed under any permits, licenses, judgments, decrees, agreements or recorded covenants, conditions, restrictions or easements, the purpose of which is to protect the environment, human health, public safety or welfare, or which pertain to Hazardous Materials. "EQUITY RIGHTS" shall mean, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or -44- partnership or other ownership interests of any type in, such Person. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE" shall mean each trade or business (whether or not incorporated) which together with the Company is treated as a "single employer" under sections (b), (c), (m), (n) or (o) of section 414 of the Code, or section 4001 of ERISA; provided that in no event shall the Purchasers or any of their Affiliates be deemed to be an ERISA Affiliate for purposes of this Agreement. "EVENT OF DEFAULT" shall mean any of the events specified in paragraph 10A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "Default" shall mean any of such events, whether or not any such requirement has been satisfied. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. "EXPENSES" shall have the meaning specified in paragraph 17B hereof. "FINANCING FEE" shall have the meaning specified in paragraph 3. "FIXED CHARGES RATIO" shall mean, as at any date, the ratio of (a) Cash Flow for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date (or, with respect to any date prior to December 31, 1995, for the period commencing on January 1, 1995 and ending on the fiscal quarter ending on or most recently ended prior to such date) to (b) Debt Service for such period. "FORMER TRI-STAR NOTE" shall mean (a) the "Contingent Incentive Payments" referred to in the Share Purchase Agreement dated as of October 15, 1991 among the Company, Cory Holdings, Inc. and Neil Castleman and (b) that certain subordinated note, dated October 15, 1991, issued by Tri-Star Electronics International, Inc. and payable to Tri-Star Electronics, Inc. "FULLY DILUTED" shall mean, at any point in time, the number of common shares outstanding, increased by all common equivalent shares (stock options, warrants, convertible -45- securities and any other security or instrument, whether in or out of the money, that could result in additional common shares being issued at any time in the future) at the time outstanding. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "GUARANTEE" shall mean, as applied to any obligation, a guarantee (other than by endorsement of negotiable instruments for deposit or collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation. "GUARANTEED OBLIGATIONS" shall have the meaning specified in paragraph 14A. "HAZARDOUS MATERIALS" means any product, substance, chemical, material or waster, whose presence, nature, quantity and/or intensity of existence, use, manufacture, processing, treatment, storage, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the property owned or leased by the Company or any of its Subsidiaries (the "Property") is either (A) potentially injurious to public health, safety, welfare, or the environment, or to the Property; (B) regulated, monitored or subject to reporting by any governmental agency; or (C) a basis for potential liability to any governmental agency or a third party under any applicable statute or common law theory. Without limiting the foregoing, the term, "Hazardous Materials," includes but is not limited to any material, waste or substance which is or contains (A) petroleum or petroleum products, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C) polychlorinated bipheneyls, (D) flammable explosives; (E) radioactive materials; (F) radon in excess of EPA recommended exposure limits or (G) paint containing concentrations of lead in excess of .06% or mercury in excess of 200 parts per million, and located within any portion of the Real Property. "ING WARRANT" shall mean that certain Common Stock Purchase Warrant, dated as of the date hereof, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation. -46- "INITIAL PUBLIC OFFERING" shall mean the closing of an underwritten public offering for shares of common stock of the Company pursuant to a registration statement under the Securities Act, with proceeds to the Company of $25,000,000 or more, and valuing the total common equity of the Company at $55,000,000 or more at closing. "INTERCOMPANY NOTE" shall mean a promissory note of Cory to the Company, in an aggregate principal amount of $1,500,000, evidencing a loan made by the Company to Cory solely to permit Cory to repay certain existing Debt of Cory. "INTEREST EXPENSE" shall mean, for any period, all interest expense less interest income for such period for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), including (without limitation) the following: (a) all interest in respect of Debt (including, without limitation, the interest component of any payments in respect of Capitalized Leases) accrued or capitalized during such period (whether or not actually paid during such period) and (b) the net amounts payable (or minus the net amount receivable) under Interest Rate Protection Agreements (as defined in the Credit Agreement) during such period (whether or not actually paid or received during such period). "LEVERAGE RATIO" shall mean, at any time, the ratio of Total Liabilities to Net Worth of the Company at such time. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" within the meaning of section 3(37) of ERISA or section 414(f) of the Code to which contributions are or have been made by the Company or any ERISA Affiliate. "NET WORTH" shall mean, as at any date for any Person, the sum for such Person and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of paid-in capital (both in respect of common equity and preferred equity), plus -47- (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit), plus (c) the cumulative effect of Deal Costs, any warrant accretion expense (as such term is used in GAAP) or any original issue discount accretion expense (as such term is used in GAAP) arising after the Closing Date, minus (d) the cost of treasury shares, plus (e) the value ascribed to the Warrants and the Additional Warrants (and any other Equity Rights exercisable in respect of capital stock of the Company) and the cumulative effect of any change in the valuation of the Warrants and the Additional Warrants, plus (f) the cumulative effect of any original issue discount related to the Seller Note (including any non-cash portion thereof relating to the consulting arrangements contemplated thereby) and any other non-cash effect of the Seller Note, plus (g) $6,627,000; provided that (i) any predecessor basis adjustment required under GAAP and (ii) any foreign currency translation adjustments permitted under GAAP shall be disregarded in calculating "Net Worth". "NOTES" shall have the meaning specified in paragraph 1(a). "OFFICER'S CERTIFICATE" shall mean a certificate of the Company (or, if specified, a Subsidiary of the Company) signed by a Responsible Officer. "ORDER" shall mean the Order Against Defendants DeCrane Aircraft Holdings, Inc., et al., dated July 12, 1994, issued by the Superior Court of the State of California for the County of Los Angeles in connection with Brian Gamberg v. Cory Components, Inc., et al. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "PENALTY WARRANTS" shall have the meaning specified in paragraph 16D. -48- "PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, an estate, a trust, an unincorporated organization and a government or any department or agency thereof. "PLAN" shall mean an "employee pension benefit plan" within the meaning of section 3(2) of ERISA maintained or to which contributions are or have been made by the Company or any ERISA Affiliate. "PROVIDENT WARRANT" shall mean that certain Common Stock Purchase Warrant, dated as of the date hereof, of the Company in favor of The Provident Bank. "PURCHASE PRICE" shall have the meaning specified in paragraph 5. "PURCHASERS" shall have the meaning specified in the first paragraph hereof. "PUT AMOUNT" shall mean an amount equal to (a) the greater of (i) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arms-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the Valuation Procedures, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, (ii) the net book value of the Company determined by reference to the Company's financial statements as of the most recently ended fiscal quarter, or (iii) a multiple of (1) 6.0 times earnings before interest, income taxes, depreciation and amortization (determined in accordance with GAAP) less (2) amounts outstanding under the Credit Agreement and this Agreement less (3) any other indebtedness (but excluding the Seller Note) (as defined in accordance with GAAP) plus (4) cash and cash equivalents of the Company, divided by (b) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Put Amount, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and -49- other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "RELATED AGREEMENTS" means the Advisory Agreement, the Notes, the Warrants, the Stock Purchase Agreement, the Amended and Restated Shareholders Agreement and the Amended and Restated Registration Rights Agreement. "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "RESPONSIBILITY OFFICER" shall mean the Chairman of the Board, Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, Treasurer, Secretary and, with respect to the Company, any Vice President; provided that, for purposes of this Agreement, Brian Gamberg shall be deemed not to be a Responsible Officer. "SECURITIES" shall have the meaning specified in paragraph 1. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time. "SELLER NOTE" shall mean the Former Tri-Star Note and the Deferred Note Payable. "SENIOR DEBT" shall mean indebtedness of the Company and any of its Subsidiaries incurred under the Credit Agreement, together with any refinanced Senior Debt permitted by paragraph 7B (ii) and additional Senior Debt permitted by paragraph 7B (iii). "SENIOR FINANCING" shall mean the transactions pursuant to and contemplated by the Credit Agreement. "SENIOR OBLIGATIONS" shall mean the obligations of the Company and any of its Subsidiaries incurred with respect to the Senior Debt, including principal and interest (including post-petition interest at a rate not to exceed the applicable pre-default rate of interest with respect thereto (which amount shall not exceed the Base Rate plus the Applicable Margin (each as defined in the Credit Agreement)) and liabilities with respect to -50- yield protection, indemnities, reimbursement obligations and fees and expenses, all as specified in the Credit Agreement (or any agreement evidencing the refinanced Senior Debt referred to in paragraph 7B(ii)) and related to such indebtedness; provided that the Senior Obligations exclude, without limitation, any put rights with respect to warrants issued to the parties to the Credit Agreement. "SIGNIFICANT HOLDER" shall mean (i) the Purchasers, so long as the Purchasers or the Purchasers' nominees shall hold any Notes (or any other security of the Company acquired by the Purchasers in exchange for such Notes) and (ii) any ether holder of at least 50% of the aggregate principal amount of the Notes from time to time outstanding. "STOCK PURCHASE AGREEMENT" shall mean that certain Stock Purchase Agreement, dated as of the date hereof, between Key Equity Capital Corporation and the Purchasers. "SUBORDINATED LIABILITIES" shall mean the indebtedness of the Company and any of its Subsidiaries incurred under this Agreement and guarantees related to such indebtedness, including (without limitation) principal and interest on the Notes, fees, expenses, indemnities and liabilities with respect to representations related to such indebtedness and obligations of the Company with respect to the Put (including, without limitation, the Put Amount and any interest thereon) described in paragraph 16C hereof; provided that the Subordinated Liabilities shall not include any obligations of the Company and any of its Subsidiaries (i) representing damages suffered by the Purchasers for any breach or misrepresentation by the Company or otherwise with respect to the Foreign Investment in Real Property Tax Act under this Agreement or (ii) representing liabilities in respect of environmental matters incurred by the Purchasers for any breach or misrepresentation by the Company or otherwise with respect to environmental liabilities under this Agreement; and provided, further, that the Subordinated Liabilities shall not include (x) the Advisory Fee except to the extent and as provided in paragraph 8(a)(iii) hereof or (y) after bankruptcy proceedings have been initiated with respect to the Company or following acceleration of the Notes, attorneys' fees incurred by the Purchasers or their Affiliates with respect to such events, or (z) the Penalty Warrants. "SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or similar entity, a majority of the Voting Stock or interests of which is at the time as of which any determination is being made owned by such Person either directly or indirectly through subsidiaries. -51- "SUBSIDIARY GUARANTEE" shall mean a Guarantee pursuant to the terms of this Agreement by any Subsidiary Guarantor. "SUBSIDIARY GUARANTORS" shall mean Cory Components, Inc. (but only to the extent permitted by the Order and as limited by paragraph 14I); Cory Holdings, Inc.; Tri-Star Technologies; Tri-Star Technologies, Inc.; Unidec S.A.; Tri-Star Electronics International, Inc.; Tri-Star Holdings, Inc.; Hollingsead International Limited; Hollingsead International, Inc.; and such other Persons as may become Subsidiary Guarantors pursuant to the provisions of this Agreement; provided, however, that no Person shall be a Subsidiary Guarantor after such time as it has been released from its Subsidiary Guarantee pursuant to the provisions of this Agreement. "TECHNICAL CONSULTING AGREEMENT" shall mean the Technical Consulting Agreement dated as of October 15, 1991 between the Company and Neil Castleman. "TOTAL LIABILITIES" shall mean, as at any date, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all Debt and (b) all other liabilities that should be classified as liabilities on a balance sheet, including, without limitation, all reserves (other than general contingency reserves) and all deferred taxes and other deferred items; provided that "Total Liabilities" shall not include any contingent liabilities of the Company under the Seller Note unless and until such liabilities become due and payable in cash. "TRANSFEREE" shall mean, with respect to all or any part of any of the Securities, any direct or indirect transferee with (i) net worth, assets or investment discretion with respect to assets of at least $25,000,000 and (ii) in the opinion of the transferor, sufficient financial and business sophistication, knowledge and experience, including, without limitation, private venture capital entities that satisfy the requirements of clause (i) above. "TRIGGERING EVENT" shall mean the occurrence of the event described in clause (i) below together with either of the events described in clause (ii)(a) or (ii)(b) below: (i) the payment in full (including payment of all principal and all accrued and unpaid interest) of the Notes and (ii) either (a) a sale of all or substantially all of the stock or assets of the Company for cash in an amount equivalent to a common equity valuation of $30,000,000 or more or (b) an Initial Public Offering. -52- "VALUATION PROCEDURES" shall mean, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Purchasers within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Purchasers or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Purchasers nominate three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Purchasers to make its determination within thirty (30) days of its selection. The fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. "VOTING STOCK" shall mean securities of any class or series (including rights to purchase such securities through warrants, options or otherwise) of a corporation or association the holders of which are entitled to participate in the election of directors (or persons performing similar functions) of such corporation or association. "WARRANTS" shall have the meaning specified in paragraph 1(b). "WELFARE PLAN" shall mean an "employee welfare benefit plan" within the meaning of section 3(1) of ERISA maintained or to which contributions have been made by the Company or any ERISA Affiliate. 14. GUARANTEE OF NOTES AND OTHER OBLIGATIONS. 14A. OBLIGATIONS GUARANTEED. Each of the Subsidiary Guarantors, jointly and severally, in consideration of the execution and delivery of this Agreement and certain other benefits to the Subsidiary Guarantors which are expected to arise as a result of the transactions contemplated by this Agreement, hereby unconditionally and irrevocably guarantees to the Purchasers and to the holders from time to time of the Notes the due and punctual payment of the principal of and interest on the Notes when and as the same shall become due and payable (whether at the maturity thereof, by acceleration, by notice of prepayment or otherwise) according to the terms thereof and of this Agreement, as such may be amended from time to time, and the due -53- and punctual payment of any other amounts owing to the Purchasers and to such holders under or in respect of the Notes, and the due and punctual payment of any obligations with respect to the Put owing to the Purchasers and to the holders of the Warrants, under this Agreement and all other payment obligations of the Company and its Subsidiaries hereunder and thereunder, whether absolute or contingent, liquidated or unliquidated (collectively, the "Guaranteed Obligations"). In the absence of the due observance and performance by the Company and its Subsidiaries of any of its or their other obligations, undertakings and conditions contained in this Agreement, each Subsidiary Guarantor shall use its best efforts, to the extent practicable, to provide reasonably equivalent performance intended to achieve comparable results. If the Company or its Subsidiaries shall not punctually pay any such principal, interest or other amounts in respect of the Guaranteed Obligations (regardless of whether the Purchasers or the holders of the Notes or Warrants have recourse against the Company), each Subsidiary Guarantor shall provide that such payment be made forthwith thereafter. If the Purchasers or any of the holders of the Notes shall have the right to declare any or all of the Notes or other Guaranteed Obligations due and payable,. and acceleration of the payment of such Notes or other Guaranteed Obligations is stayed, enjoined or otherwise prevented for any reason, in each case as determined in good faith by the Purchasers and each holder of Notes, each Subsidiary Guarantor, upon demand therefor, shall pay to the Purchasers and each holder of Notes, the sums which would have been due to the Purchasers and such holders under this Agreement if such acceleration had occurred, all as permitted by applicable law. 14B. OBLIGATIONS UNCONDITIONAL. Each Subsidiary Guarantor agrees that its obligations hereunder are absolute and unconditional, irrespective of the validity, regularity or enforceability of or any change in or amendment to any Note or the Guaranteed Obligations or this Agreement, the institution or absence of any action to enforce the same, the waiver or consent by the Purchasers or the holder of any Note with respect to the provisions thereof or hereof, the exchange, release or non-perfection of any collateral security, or any release or amendment or waiver or consent to departure from the terms of any Subsidiary Guarantee of, the Notes or any other Guaranteed Obligations, the obtaining of any judgment against the Company or any Subsidiary or any action to enforce the same, the inability to recover from the Company or any Subsidiary because of any statute of limitations, laches or otherwise or any other circumstance which might otherwise constitute a legal or equitable discharge of or a defense to a guarantor, and that the provisions of this paragraph 14 constitute a guarantee of payment and not of collectibility. -54- 14C. WAIVERS AND AGREEMENTS. Each Subsidiary Guarantor hereby unconditionally: (i) waives notice of acceptance hereof, of any action taken or omitted in reliance hereon and of any defaults in respect of the Notes or in the payment of any other Guaranteed Obligations, diligence, protest, presentment, filing of claims with a court in the event of the bankruptcy of the Company, any right to require a proceeding first against the Company, or that the Company be joined in any proceeding against the Subsidiary Guarantors, any marshalling of assets of the Subsidiary Guarantors or the Company, any notice of default with respect to any of the Notes or the other Guaranteed Obligations or this Agreement or any other act or omission or thing or delay to do any other act or thing which might in any manner or to any extent vary the risk of the Subsidiary Guarantors or which might otherwise operate as a discharge of the Subsidiary Guarantors; (ii) agrees that this Subsidiary Guarantee shall remain in full force and effect without regard to, and shall not be affected or impaired by, any invalidity, irregularity or unenforceability in whole or in part of any of the Notes or the other Guaranteed Obligations or this Agreement or any of the limitations of liability or payment conditions thereunder which may now or hereafter be caused or imposed in any manner whatsoever; (iii) agrees that this Subsidiary Guarantee shall not be subject to any counterclaim (other than those which are compulsory in nature), set-off, deduction or defense based upon any claim the Subsidiary Guarantors may have against the Company or the Purchasers or any holder of the Notes hereunder or otherwise; and (iv) agrees that this Subsidiary Guarantee shall be discharged only by complete performance of the undertakings in the Notes and in this paragraph 14. Nothing herein is intended to impair any rights of the Subsidiary Guarantors to enforce any rights they may have against any Person by way of a separate proceeding or action. 14D. OBLIGATIONS UNIMPAIRED. Each of the Subsidiary Guarantors authorizes the Purchasers and the holders of the Notes and the other Guaranteed Obligations, without notice or demand to the Subsidiary Guarantors and without affecting its liability hereunder, from time to time (a) to renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, all or any part of the Guaranteed Obligations; (b) to take and hold security for the payment of the Notes and the other Guaranteed Obligations, for the performance of this Subsidiary Guarantee or otherwise for the Guaranteed Obligations and to exchange, enforce, waive and release any such security; (c) to apply any such security and to direct the order or manner of sale thereof as the Purchasers and such holders in their discretion may determine; (d) to obtain additional or substitute endorsers or guarantors; (e) to exercise or refrain -55- from exercising any rights against the Company or others; and (f) to apply any sums, by whomsoever paid or however realized, to the payment of the principal of, premium, if any and interest on the Notes and any other obligation hereunder. Each of the Subsidiary Guarantors waives any right to require the Purchasers and the holders of the Notes to proceed against any additional or substitute endorsers or guarantors or to pursue or exhaust any security provided by the Company, the Subsidiary Guarantors or any other Person or to pursue any other remedy available to the Purchasers or to such holders. 14E. WAIVER OF SUBROGATION, ETC. Each of the Subsidiary Guarantors agrees not to exercise, and hereby irrevocably waives, to the fullest extent it may effectively do so, any and all rights of reimbursement, indemnity and other rights of repayment which it may have or which it may acquire by way of subrogation or otherwise as a result of the Company's failure to observe or perform any of the Guaranteed Obligations or its undertakings hereunder or under any of the Guaranteed Obligations or as a result of any other event or condition, whether such rights arise directly against the Company or through any holders of a Guaranteed Obligation. 14F. RESCISSION OF PAYMENT. This Subsidiary Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or a part thereof, of the principal of or interest on any of the Notes or of any other Guaranteed Obligation is rescinded or must otherwise be restored or returned by the Purchasers or any subsequent holder of any of the Notes or any other Guaranteed Obligation upon the insolvency, bankruptcy or reorganization of the Company or any of its Subsidiaries, or otherwise, all as though such payment had not been made. 14G. ELECTION TO PERFORM OBLIGATIONS. The Subsidiary Guarantors may at any time elect to pay or otherwise perform any obligation of the Company or any of its Subsidiaries under this Agreement or in respect of the Notes or any other Guaranteed Obligation, which shall operate as a discharge and release of the Company from such obligation to the Purchasers or any subsequent holders of any of the Notes or any other Guaranteed Obligation, provided that no such election shall release the Company from any of its other obligations hereunder and under the Notes and any other Guaranteed Obligations. 14H. RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary -56- Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the assets, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations; provided that the aggregate amount that Cory shall be required to pay hereunder shall be limited as provided in paragraph 14I hereof. The payment obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under this paragraph 14H shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this paragraph 14 and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this paragraph 14H, (i) "Excess Funding Guarantor" shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "Excess Payment" shall mean, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share" shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all assets of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all assets of the Company and all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Company and the Subsidiary Guarantors hereunder) of the Company and all of the Subsidiary Guarantors, all as of the Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder subsequent to the Closing Date, then for purposes of this paragraph 14H such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary Guarantor as of the Closing Date and the aggregate present fair saleable value of the assets, and the amount of the debts and liabilities, of such Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such value and amount -57- on the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. 14I. LIMITATION ON CORY GUARANTEE. Notwithstanding the foregoing provisions of this paragraph 14, the maximum aggregate amount that Cory may be required to pay hereunder shall not exceed an amount equal to $13,500,000 less the outstanding principal amount of the Intercompany Note (it being understood that all payments and prepayments of the Guaranteed Obligations by the Company or any of its Subsidiaries for purposes of this paragraph 14I be applied first to the portion of the Guaranteed Obligations that exceeds said $13,500,000 and last to the portion of the Guaranteed Obligations that does not exceed $13,500,000) and that Cory shall only be liable hereunder to the extent permitted under the Order. It is understood and agreed that, with respect to the guarantee of Cory pursuant to the Credit Agreement, Cory's liability hereunder will only be in an amount which, when added to its liability under the Credit Agreement, does not exceed said $13,500,000. It is further understood and agreed that Cory's liability will be applied as follows: first, to the guarantee of Cory under the Credit Agreement; second, to the guarantee of Cory under this Agreement (other than with respect to the Put Amount); and third, to the guarantee of Cory with respect to the put rights contained in this Agreement, the ING Warrant and the Provident Warrant. 14J. LIMITATION ON KERNER LIABILITY. It is understood and agreed that the sole recourse in respect of the obligations of Tri-Star Technologies under this paragraph 14 shall be to the assets of Tri-Star Technologies and that nothing contained herein shall create any obligation of or right to look to Alexander Kerner or his assets individually for the satisfaction of such obligations. 14K. LIMITATION ON GUTERMANN LIABILITY. It is understood and agreed that the sole recourse in respect of the obligations of Unidec S.A. under this paragraph 14 shall be to the assets of Unidec S.A. and that nothing contained herein shall create any obligation of or right to look to Silvia Gutermann or her assets individually for the satisfaction of such obligations. 14L. GENERAL LIMITATION ON GUARANTEES. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor hereunder would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors (other than the holders of the Senior Debt), then, notwithstanding any other provisions -58- hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, the Purchasers, the holder of any Note or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. 14M. SURVIVAL. The obligations of the Subsidiary Guarantors under this paragraph 14 shall survive the transfer and payment in full of all of the Notes and any other Guaranteed Obligation. 15. ADVISORY FEE. For so long as the Purchasers hold any Note, any Warrant exchangeable into at least 2% of the issued and outstanding Common Stock on a Fully Diluted basis, or at least 2% of the issued and outstanding Common Stock on a Fully Diluted basis, the Company will pay to Electra in cash an annual fee (the "Advisory Fee") in the amount of $72,000, payable in advance in equal semi-annual installments on the first Business Day of each January and July, and commencing with the first Business Day in the January next succeeding the date hereof; provided that if the Purchasers no longer hold any Note and an Initial Public Offering has occurred, no Advisory Fee will be payable. In addition, at the Closing, the Company will pay to Electra a pro rated amount of the semi-annual installment for the period commencing July 1, 1994. 16. WARRANTS. 16A. TERM; EXERCISE. Subject to the terms and conditions contained in this Agreement and in the Warrants, the Warrants are exercisable, in the manner set forth in the Warrants, in whole or in part, at any time and from time to time during the period commencing on the Closing Date and ending at 5:00 p.m. New York City time on December 31, 2004, and shall be void thereafter. 16B. SERIES OF WARRANTS AND TRIGGERING EVENT. The Warrants will be issued in several series, which will be identical in all respects except as to the date after which the Warrants may be exercised and transferred. At the Closing, the Purchasers will receive the following Warrants exercisable into an aggregate of 15% of the issued and outstanding Common Stock on a Fully Diluted basis: -59- Percentage of Series Shares For Which of Warrant Exercisable ---------- ---------------- Series A 8% Series B 2% Series C 2% Series D 3% The Series A Warrants will be immediately exercisable and transferable. The Series B, Series C and Series D Warrants will be identical to the Series A Warrants in all respects, except that they may only be exercised into shares of Common Stock and may only be transferred if no Triggering Event occurs prior to the following corresponding dates: Series of Warrant If No Triggering Becoming Exercisable Event Occurs Prior To: and Freely Transferable ---------------------- ---------------------- December 31, 1996 Series B December 31, 1997 Series C December 31, 1998 Series D If a Triggering Event occurs prior to the date a series of Warrant would otherwise become exercisable or freely transferable, such series of Warrant shall be void as of the date of occurrence of such Triggering Event. 16C. PUT. (a) If no Triggering Event shall have occurred by December 31, 2000, then: (i) The Purchasers or other holder of the Warrants may, at any time thereafter, by giving written notice to the Company (the "Put Notice"), require the Company to repurchase (the "Put") all or any portion of the Warrants held by the Purchasers or other holder of the Warrants for an amount equal to the Put Amount and corresponding to that number of shares of Common Stock then issuable upon exercise of the Warrants designated in the Put Notice. The Company shall pay to the Purchasers such Put Amount within 366 days of the date of the Put and shall execute and deliver to the Purchasers a promissory note evidencing such Put Amount; any unpaid balance of the Put Amount shall bear interest, which interest shall be paid together with any payment of the Put Amount, at a rate of 14% per annum. (ii) Immediately upon receipt of (i) a Put Notice or (ii) notice from the holders of any of the ING Warrant, the Provident Warrant or the Banc One Warrant (such holders being -60- referred to herein collectively as the "Put Holders") that the Purchasers or such Put Holders intend to exercise put rights in connection with the repurchase of any of their warrants by the Company, the Company shall, before repurchasing any such warrants, give written notice thereof to the Purchasers and/or all other Put Holders, as the case may be. For a period of twenty (20) days following receipt of such notice, the Purchasers and each Put Holder shall be entitled, by written notice to the Company, the Purchasers and/or each Put Holder, as the case may be, to elect to require the Company to repurchase for cash its pro rata share (on the basis of the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Purchasers and each such Put Holder) of the warrants held by the Purchasers and each such Put Holder. If, at the expiration of such twenty-day period the Purchasers or any Put Holders have not elected to have the Company repurchase their warrants, the Company shall repurchase only those warrants for which notice has been received. (iii) If the Company shall not have funds legally available in the amount necessary to repurchase all warrants of the Purchasers and Put Holders with respect to which notice has been received, then such warrants shall be repurchased by the Company on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Purchasers and each such Put Holder. Any Put not satisfied in full in cash shall remain an obligation of the Company and shall be evidenced by a promissory note due within 366 days and bearing interest at a rate of 14% per annum, which interest shall be paid together with the Put Amount. (b) If, prior to December 31, 2000, any Put Holder notifies the Company that such Put Holder intends to exercise put rights in connection with the repurchase of any of its warrants by the Company, the Company shall, before repurchasing any such warrants, give written notice thereof to the Purchasers and all other Put Holders. For a period of twenty (20) days following receipt of such notice, the Purchasers shall be entitled, by written notice to the Company and each Put Holder, to elect to require the Company to repurchase at a price equal to the Put Amount (i) for cash, pro rata with the Put Holders, Warrants representing 40% of all shares of Common Stock issuable upon the exercise of Warrants then held by the Purchasers, and (ii) with a promissory note due within 366 days and bearing interest at a rate of 14% per annum (which interest shall be paid together with the Put Amount), any or all other Warrants held by the Purchasers. -61- 16D. PENALTY WARRANTS. For so long as the Purchasers hold any Note as to which an event described in clause (i) of paragraph 10A hereof has occurred, the Company will promptly issue to the Purchasers, for no additional consideration, additional Warrants in the form of the Series A Warrant (the "Penalty Warrants") representing the right to purchase that number of shares of Common Stock equal to 1% of the then issued and outstanding Common Stock on a Fully Diluted basis for every calendar quarter or a portion thereof that such event is not cured. 16E. ANTIDILUTION PROVISIONS. The percentage of Common Stock for which the Warrants may be exercised shall be adjusted as set forth in the Warrants in order to preserve the relative position of the holder of the warrants vis-a-vis the percentage of the issued and outstanding shares of Common Stock which such holder may acquire upon exercise of the Warrants. 16F. REGISTRATION. Pursuant to the terms of the Amended and Restated Registration Rights Agreement, the Purchasers shall have and be entitled to (i) two demand and (ii) unlimited piggyback registrations for shares of Common Stock issuable upon exercise of the Warrants. The Purchasers' demand registration rights will have preference over other demand registration rights granted by the Company, and the Purchasers' piggyback registration rights will be pro rata with any other holders of capital stock of the Company participating in such registration, to the extent and as provided in the Amended and Restated Registration Rights Agreement. 16G. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the holders thereof to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of the Warrants on any matters upon which the holders of Common Stock are entitled to vote. 17. MISCELLANEOUS. 17A. PAYMENTS WITH RESPECT TO SECURITIES. The Company agrees that, so long as the Purchasers shall hold any Note or any Warrant, it will make payments of principal of, and interest on, the Notes and payments in respect of any such other Security, by wire transfer of immediately available funds for credit to the Purchasers' account or accounts, as specified in Schedule 17A attached hereto, or to such other account or accounts as the Purchasers may designate in writing, notwithstanding any contrary provision herein or in any Note or any other Security with respect to the place of payment. The Purchasers agree that, -62- before disposing of any Note, the Purchasers will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid, provided that the Purchasers shall have no liability for failure to do so. The Company agrees to afford the benefits of this paragraph 17A to any Transferee of any Note purchased by the Purchasers hereunder. 17B. EXPENSES. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to pay, and save the Purchasers and Electra harmless against liability for the payment of, all reasonable out-of-pocket expenses arising in connection with this Agreement, the Notes, the Warrants and the shares of common stock and/or preferred stock being purchased (or otherwise issuable) to the Purchasers hereunder and under the Related Agreements and the transactions hereby and thereby contemplated, including, without limitation, the following (the "Expenses"): (i) all document production and duplication charges, (ii) all fees and expenses of counsel, accountants or advisors engaged by the Purchasers in connection with such agreements or instruments, or the transactions contemplated hereby or thereby, (iii) all expenses, including attorneys fees and expenses, incurred by the Purchasers or any of the Purchasers' Affiliates with respect to the enforcement of any rights or provisions of any such agreement or instrument, or in responding to any subpoena or other legal process issued in connection with such agreements and instruments or the transactions contemplated hereby or thereby, and (iv) all expenses incurred in connection with the printing of such agreements and instruments and all taxes (together in each case with interest and penalties, if any, and any income tax payable by the Purchasers in respect of any reimbursement therefor) which may be payable in respect of the execution and delivery of such agreements or instruments, or the issuance, delivery or purchase by the Purchasers of any Note or Warrant. The Company further agrees to indemnify and save harmless the Purchasers' and each of the Purchasers' officers, directors, employees and agents (herein called the "indemnified parties") from and against any and all actions, causes of action, suits, losses, liabilities and damages, and expenses (including, without limitation, reasonable attorneys' fees and disbursements) in connection therewith (herein called the "indemnified liabilities") incurred by the indemnified parties as a result of, or arising out of, or relating to any of the transactions contemplated hereby or by the Related Agreements, except for any indemnified liabilities arising on account of the gross negligence or willful misconduct of the indemnified parties, provided that, if and to the extent such agreement to indemnify may be unenforceable for any reason, the Company shall make the maximum contribution to the payment -63- and satisfaction of each of the indemnified liabilities which shall be permissible under applicable law. The obligations of the Company under this paragraph 17B shall survive the transfer of any Note or Warrant and the payment of any Note or Warrant. 17C. AMENDMENTS, CONSENTS AND WAIVERS. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only with the written consent to such amendment, action or omission to act, of the Significant Holder, or the holder of Warrants exchangeable into 5% or more of the Common Stock from time to time outstanding, affected by such amendment, action or omission to act and each holder of any Security at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 17C, whether or not such Security shall have been marked to indicate such consent; provided that notwithstanding anything in this paragraph 17C to the contrary, without the written consent of the holder or holders of all Securities at the time outstanding, no consent, amendment or waiver to or under this Agreement shall extend or reduce the maturity of any Security, or reduce the rate or affect the time of payment of interest payable with respect to any Security, or affect the exchange or conversion rights of any Security, or affect the time, amount or allocation of any required or optional prepayments, or reduce the proportion of the amount of the Securities required with respect to any consent, amendment or waiver of, or contemplated by, this Agreement; and provided, further, that no amendment to this Agreement shall increase the remaining principal amount or extend the maturity of the Notes or increase the rate or affect the time of payment of interest payable with respect to the Notes, in each case from that in effect as of the date hereof, or materially adversely affect the rights (taken as a whole) of any holder of Senior Debt without the written consent of the Agent (as defined in the Credit Agreement). The Company shall promptly send copies of any amendment, consent or waiver (and any request for any such amendment, consent or waiver) relating to this Agreement, any Related Agreement or the Securities to the Purchasers and, to the extent practicable, shall consult with the Purchasers in connection with each such amendment, consent and waiver. No course of dealing between the Company and the holder of any Security nor any delay in exercising any rights hereunder or under any Security shall operate as a waiver of any rights of any holder of such Security. 17D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES AND WARRANTS. The Notes and Warrants may be transferred to any Transferee acceptable to (which acceptance will not be unreasonably withheld by) the Company, provided that any such -64- transfer does not violate any applicable rule or regulation under the Securities Act or the Exchange Act. The Notes may be transferred in denominations of at least $1,000,000. The Company shall keep at its principal office a register in which the Company shall provide for the registration and transfer of the Warrants. The Company shall keep at its principal office a register in which the Company shall provide for the registration and transfer of the Notes. The Notes are issuable as registered Notes only, each without coupons, in denominations of at least $500,000 (except as may be necessary to reflect any principal amount not evenly divisible by $500,000). Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, which Notes shall be registered in the name of such transferee or transferees. At the option of the holder of any Note such Note may be exchanged for Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or other indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. The Purchasers' unsecured indemnity or that of any Transferee that is an institution shall be acceptable to the Company. 17E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the -65- contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion. Any Notes at any time owned or acquired in any manner by or on behalf of the Company or any Subsidiary of the Company shall not be deemed to be outstanding for any purpose of this Agreement and shall be forthwith canceled. 17F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company or any of its Subsidiaries in connection herewith shall survive the execution and delivery of this Agreement and the Securities, the transfer by the Purchasers of any Security or portion thereof or interest therein and the payment of any Security, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of the Purchasers or any Transferee; provided, however, that any claim for a breach of any representation or warranty set forth herein must be made on or prior to the expiration of the first anniversary of the repayment in full of the Notes (together with all accrued interest thereon). Subject to the preceding sentence, this Agreement, the Related Agreements and the Securities embody the entire agreement and understanding between the Purchasers and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether or not so expressed. 17H. CERTAIN RELATIONSHIPS. The Agent and the Lenders (each as defined in the Credit Agreement) (i) shall be third party beneficiaries with respect to paragraph 8 of this Agreement and (ii) are not fiduciaries, agents or representatives of the Purchasers or any other holder of the Notes. 17I. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that the holder of any Security may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder, by or on behalf of the Company or its Subsidiaries in connection with or pursuant to this Agreement to (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Security, (iii) any -66- Person to which such holder offers to sell such Security or any part thereof, (iv) any Person to which such holder sells or offers to sell a participation in all or any part of such Security, (v) any federal or state regulatory authority having jurisdiction over such holder, or (vi) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process, (c) in connection with any litigation to which such holder is a party Or (d) in order to protect such holder's investment in such Security; provided, that any confidential information so disclosed to any third party may be the subject of a confidentiality agreement if reasonably requested by the Company. 17J. NOTICES. All communications provided for hereunder shall be sent by confirmed telecopy, first class mail certified mail (return receipt requested) or overnight delivery service (with charges prepaid): (i) if to the Purchasers, addressed to EIT at 65 Kingsway, London, England WC2B6QT, ATTENTION: Company Secretary, and addressed to Associates at 65 Kingsway, London, England WC2B6QT, ATTENTION: Philip J. Dyke, or to such other addresses as the Purchasers may have designated to the Company in writing, with copies to Electra at 70 East 55th Street (25th Floor), New York, New York 10022, ATTENTION: John L. Pouschine, and to Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York 10022, ATTENTION: Peter J. Hanlon; (ii) if to any other holder of any Notes, addressed to such holder at the registered address of such holder as set forth in the register kept by the Company at its principal office as provided in paragraph 17D hereof; (iii) if to any other holder of the Warrants, addressed to such holder at the address of such holder in the record hooks of the Company; and (iv) if to the Company, addressed to it at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, ATTENTION: R. Jack DeCrane, or to such other address or addresses as the Company may have designated in writing to the Purchasers and each other holder of any of the Securities at the time outstanding, with a copy to Baker & Hostetler, 3200 National City Center, Cleveland, Ohio 44114, ATTENTION: James Griswold. 17K. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 17L. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory or acceptable to any party, the determination of such satisfaction -67- or acceptability shall be made by such party in its sole and exclusive reasonable judgment (as determined in accordance with such party's customary legal and business practices) exercised in good faith. 17M. GOVERNING LAW: JURISDICTION. This Agreement (including, without limitation, paragraph 14 hereof as it applies to Unidec S.A.) and the Securities shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York without reference to such State's conflicts of laws principles. The Company and each Subsidiary Guarantor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City (and of the appropriate appellate courts) for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby and irrevocably waives, to the fullest extent permitted by applicable law, any objection to venue laid therein. Process in any such proceeding may be served on such party anywhere in the world, whether within or without the State of New York (except for Unidec S.A. which must be served at its principal place of business in Switzerland). 17N. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. -68- IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the date first above written. Very truly yours, DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer ELECTRA INVESTMENT TRUST P.L.C. By: ------------------------------------ Name: Title: ELECTRA ASSOCIATES, INC. By: ------------------------------------ Name: Title: The foregoing Agreement is hereby accepted solely as it relates to the Subsidiary Guarantees contained herein as of the date first above written SUBSIDIARY GUARANTORS: CORY COMPONENTS, INC. By: /s/ Robert Rankin ------------------------------------ Name: Robert Rankin Title: Treasurer, Chief Financial Officer & Secretary CORY HOLDINGS, INC. By: /s/ R. Jack DeCrane ------------------------------------ Name: Title: IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the date first above written. Very truly yours, DeCRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------ Name: Title: ELECTRA INVESTMENT TRUST P.L.C. By: /s/ H.A.L.H. MUMFORD ------------------------------------ Name: H.A.L.H. MUMFORD Title: Director ELECTRA ASSOCIATES, INC. By: /s/ R. J. Lewis ------------------------------------ Name: R. J. LEWIS Title: Director The foregoing Agreement is hereby accepted solely as it relates to the Subsidiary Guarantees contained herein as of the date first above written SUBSIDIARY GUARANTORS: CORY COMPONENTS, INC. By: ------------------------------------ Name: Title: CORY HOLDINGS, INC. By: ------------------------------------ Name: Title: TRI-STAR TECHNOLOGIES By: Tri-Star Technologies, Inc., its General Partner By: /s/ R. Jack DeCrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer TRI-STAR TECHNOLOGIES, INC. By: /s/ R. Jack Decrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: /s/ R. Jack DeCrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer TRI-STAR HOLDINGS, INC. By: /s/ R. Jack DeCrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer UNIDEC S. A. By: ------------------------------------ Name: Title: HOLLINGSEAD INTERNATIONAL LIMITED By: /s/ R. Jack DeCrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer HOLLINGSEAD INTERNATIONAL, INC. By: /s/ R. Jack DeCrane ------------------------------------ Name: R. Jack DeCrane Title: Chief Executive Officer TRI-STAR TECHNOLOGIES By: Tri-Star Technologies, Inc., its General Partner By: ------------------------------------ Name: Title: TRI-STAR TECHNOLOGIES, INC. By: ------------------------------------ Name: Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: ------------------------------------ Name: Title: TRI-STAR HOLDINGS, INC. By: ------------------------------------ Name: Title: UNIDEC S.A. By: /s/ Silvia Gutermann ------------------------------------ Name: Silvia Gutermann Title: Sole Administrator HOLLINGSEAD INTERNATIONAL LIMITED By: ------------------------------------ Name: Title: HOLLINGSEAD INTERNATIONAL, INC. By: ------------------------------------ Name: Title: EXHIBIT 1(b) SERIES [A] WARRANT TO PURCHASE COMMON STOCK OF DeCRANE AIRCRAFT HOLDINGS, INC. WARRANT NO. [A-1] NUMBER OF SHARES OF COMMON STOCK: [438,733] TABLE OF CONTENTS PAGE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . 5 2.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 6 2.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . 6 2.4. Continued Validity . . . . . . . . . . . . . . . . . . . . . . . 6 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . 6 3.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2. Division and Combination . . . . . . . . . . . . . . . . . . . . 7 3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . 7 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1. Stock Dividends, Subdivisions and Combinations . . . . . . . . . 8 4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . . 8 4.3. Issuance of Additional Shares of Common Stock . . . . . . . . . 9 4.4. Issuance of Warrants, Options or Other Rights . . . . . . . . . 11 4.5. Issuance of Convertible Securities . . . . . . . . . . . . . . . 11 4.6. Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . 12 4.7. Other Provisions Applicable to Adjustments under this Section. . 13 4.8. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets . . . . . . . . . . . . . . . . . . . . . 15 4.9. Other Action Affecting Common Stock . . . . . . . . . . . . . . 16 4.10. Taking of Record; Stock and Warrant Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . . . . . 17 5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . 17 5.2. Notice of Certain Corporate Action . . . . . . . . . . . . . . . 17 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . 18 8. PUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 9. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . 19 9.1. Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . 19 9.2. Notice of Proposed Transfers; Requests for Registration . . . . 19 (i) 10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . 20 12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . 20 14.2. Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . 21 14.3. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 21 14.5. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 22 14.7. Office of the Company . . . . . . . . . . . . . . . . . . . . . 22 14.8. Information . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.9. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.12. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 23 EXHIBITS: Exhibit A - Subscription Form Exhibit B - Assignment Form (ii) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF NOVEMBER 2, 1994, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES [A] WARRANT To Purchase Common Stock Of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT [ELECTRA INVESTMENT TRUST P.L.C., a corporation organized under the laws of the United Kingdom] [ELECTRA ASSOCIATES, INC., a corporation organized under the laws of Delaware] ("Electra"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to [438,733] shares and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of certain of the Company's 12% Senior Subordinated Notes due December 31, 2001, together with the other warrants referred to in the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of the Series B, Series C and Series D warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U. S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arms-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control 2 rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Securities Purchase Agreement) permitted under the Securities Purchase Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, with 3 such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Securities Purchase Agreement, or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean [November 2, 1994]. "Electra" shall have the meaning set forth in the first paragraph hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Expiration Date" shall mean December 31, 2004. "Fully-Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 4 "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra and Electra Associates, Inc., a Delaware corporation. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. MANNER OF EXERCISE. From and after the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder [***delete the following for Series A Warrants only*** ; provided, however, that if a Triggering Event shall have occurred prior to the Effective Date this Warrant shall be void as of the date of occurrence of such Triggering Event]. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such 5 notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.3. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal 6 to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 7 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 8 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision 9 or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale and the denominator of which shall be the sum of (x) number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common 10 Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No 11 further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or 12 Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, than such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without 13 taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14 (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is 15 rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. 16 For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which give rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Banc One Warrant or the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or 17 change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. 18 Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in paragraph 16C of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the Securities Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN 19 EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the Securities Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the Securities Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of Electra Investment Trust P.L.C. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in paragraph 6A of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Purchasers within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an 20 Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Purchasers or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Purchasers nominate three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Purchasers to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; 21 (b) If to the Company at: DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: R. Jack DeCrane or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote [***delete the following for Series A Warrants only*** ; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant]. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 9 of this Warrant. The 22 Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 9 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Electra or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 23 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: November 2, 1994 DeCRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------- Name: R. Jack DeCrane Title: Chief Executive Officer Attest: By: ------------------------------------- Name: Robert A. Rankin Title: Secretary 25 Exhibit 1(a) DeCRANE AIRCRAFT HOLDINGS, INC. 12% SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2001 No._____ New York, New York $________________ November __, 1994 FOR VALUE RECEIVED, the undersigned, DeCRANE AIRCRAFT HOLDINGS, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Ohio, hereby promises to pay to ELECTRA INVESTMENT TRUST P.L.C. [ELECTRA ASSOCIATES, INC.], or registered assigns, the principal sum of___________________________________________________________ DOLLARS ($________________) on December 31, 2001, with interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid balance thereof at the rate of 12% per annum from the date hereof, payable semi-annually on the last day of June and December in each year, commencing with the last day of the December next succeeding the date hereof, until the principal hereof shall have become due and payable, and on the maturity date hereof. Capitalized terms used but not otherwise defined in this Note shall have the respective meanings ascribed thereto in the Securities Purchase Agreement, dated as of November___, 1994, as may be amended from time to time (the "Agreement"), among the Company and the original purchasers of the Notes. Payments of principal and interest are to be made in lawful money of the United States of America, in the manner provided in the Agreement. This Note is one of a series of Senior Subordinated Notes (herein called the "Notes") issued pursuant to the Agreement, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part. This Note is a registered Note and, as provided and subject to the limitations contained in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company shall treat the person in whose name this -1- Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. This Note is guaranteed by the Subsidiary Guarantors, as provided in the Agreement. Reference is made to the Agreement for a description of the obligations of the Subsidiary Guarantors and the rights of the holder of this Note with respect thereto. The payment of this Note is subordinated to the prior payment of Senior Debt, as provided in the Agreement. This Note shall rank senior in right of payment to all other subordinated indebtedness of the Company, as provided in the Agreement. This Note shall bear interest on the unpaid balance hereof as set forth above; provided, however, that the rate of interest will in no event be in excess of the maximum rate of interest permitted under applicable law. In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. In addition, the original purchasers of the Notes may be entitled to Penalty Warrants exercisable for Common Stock of the Company, as provided in the Agreement. This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State. DeCRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------- Name: R. Jack DeCrane Title: President -2- DeCRANE AIRCRAFT HOLDINGS, INC. 12% SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2001 No. 1 New York, New York $6,115,973.00 November 2, 1994 FOR VALUE RECEIVED, the undersigned, DeCRANE AIRCRAFT HOLDINGS, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Ohio, hereby promises to pay to ELECTRA INVESTMENT TRUST P.L.C., or registered assigns, the principal sum of SIX MILLION ONE HUNDRED FIFTEEN THOUSAND NINE HUNDRED SEVENTY-THREE DOLLARS ($6,115,973.00) on December 31, 2001, with interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid balance thereof at the rate of 12% per annum from the date hereof, payable semi-annually on the last day of June and December in each year, commencing with the last day of the December next succeeding the date hereof, until the principal hereof shall have become due and payable, and on the maturity date hereof. Capitalized terms used but not otherwise defined in this Note shall have the respective meanings ascribed thereto in the Securities Purchase Agreement, dated as of November 2, 1994, as may be amended from time to time (the "Agreement"), among the Company and the original purchasers of the Notes. Payments of principal and interest are to be made in lawful money of the United States of America, in the manner provided in the Agreement. This Note is one of a series of Senior Subordinated Notes (herein called the "Notes") issued pursuant to the Agreement, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part. This Note is a registered Note and, as provided and subject to the limitations contained in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company shall treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. This Note is guaranteed by the Subsidiary Guarantors, as provided in the Agreement. Reference is made to the Agreement for a description of the obligations of the Subsidiary Guarantors and the rights of the holder of this Note with respect thereto. The payment of this Note is subordinated to the prior payment of Senior Debt, as provided in the Agreement. This Note shall rank senior in right of payment to all other subordinated indebtedness of the Company, as provided in the Agreement. This Note shall bear interest on the unpaid balance hereof as set forth above; provided, however, that the rate of interest will in no event be in excess of the maximum rate of interest permitted under applicable law. In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. In addition, the original purchasers of the Notes may be entitled to Penalty Warrants exercisable for Common Stock of the Company, as provided in the Agreement. This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State. DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ------------------------------------- Name: R. Jack DeCrane Title: Chief Executive Officer -2- DeCRANE AIRCRAFT HOLDINGS, INC. 12% SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2001 No. 2 New York, New York $884,027.00 November 2, 1994 FOR VALUE RECEIVED, the undersigned, DeCRANE AIRCRAFT HOLDINGS, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Ohio, hereby promises to pay to ELECTRA ASSOCIATES, INC., or registered assigns, the principal sum of EIGHT HUNDRED EIGHTY-FOUR THOUSAND TWENTY-SEVEN DOLLARS ($884,027.00) on December 31, 2001, with interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid balance thereof at the rate of 12% per annum from the date hereof, payable semi-annually on the last day of June and December in each year, commencing with the last day of the December next succeeding the date hereof, until the principal hereof shall have become due and payable, and on the maturity date hereof. Capitalized terms used but not otherwise defined in this Note shall have the respective meanings ascribed thereto in the Securities Purchase Agreement, dated as of November 2, 1994, as may be amended from time to time (the "Agreement"), among the Company and the original purchasers of the Notes. Payments of principal and interest are to be made in lawful money of the United States of America, in the manner provided in the Agreement. This Note is one of a series of Senior Subordinated Notes (herein called the "Notes") issued pursuant to the Agreement, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part. This Note is a registered Note and, as provided and subject to the limitations contained in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company shall treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. This Note is guaranteed by the Subsidiary Guarantors, as provided in the Agreement. Reference is made to the Agreement for a description of the obligations of the Subsidiary Guarantors and the rights of the holder of this Note with respect thereto. The payment of this Note is subordinated to the prior payment of Senior Debt, as provided in the Agreement. This Note shall rank senior in right of payment to all other subordinated indebtedness of the Company, as provided in the Agreement. This Note shall bear interest on the unpaid balance hereof as set forth above; provided, however, that the rate of interest will in no event be in excess of the maximum rate of interest permitted under applicable law. In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. In addition, the original purchasers of the Notes may be entitled to Penalty Warrants exercisable for Common Stock of the Company, as provided in the Agreement. This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State. DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ------------------------------------- Name: R. Jack DeCrane Title: Chief Executive Officer -2- EXECUTION COPY AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT, dated as of February 20, 1996 (this "AMENDMENT") is made among DeCRANE AIRCRAFT HOLDINGS, INC. (the "COMPANY"), ELECTRA INVESTMENT TRUST P.L.C. ("EIT") and ELECTRA ASSOCIATES, INC. ("ASSOCIATES" and, together with EIT, the "PURCHASERS"). W I T N E S S E T H : WHEREAS, the Company, EIT and Associates are parties to that certain Securities Purchase Agreement, dated as of November 2, 1994 (as amended, supplemented or otherwise modified from time to time, the "SECURITIES PURCHASE AGREEMENT"); WHEREAS, the Company has requested that the Purchasers amend the Securities Purchase Agreement and waive compliance with certain provisions of the Securities Purchase Agreement as set forth herein; and WHEREAS, the Purchasers are willing to so amend and waive compliance with certain provisions of the Securities Purchase Agreement, but only upon the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the Company, EIT and Associates hereby agree as follows: Section 1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used in this Amendment have the meanings provided in the Securities Purchase Agreement. Section 2. AMENDMENTS AND WAIVERS. Subject to satisfaction of the conditions precedent set forth herein, and effective as of the Effective Date (as defined herein), the Securities Purchase Agreement shall be amended, and compliance with certain provisions of the Securities Purchase Agreement shall be waived, as follows: 2.1. NEW DEFINITIONS. Section 13 of the Securities Purchase Agreement is hereby amended by inserting the following definitions in their alphabetically appropriate places: "'APPLICABLE ANNUALIZATION FACTOR' shall mean: (a) for the fiscal quarter ended March 31, 1996, 4.0; (b) for the fiscal quarter ended June 30, 1996, 2.0; and (c) for the fiscal quarter ended September 30, 1996, 1.33." "'CORY PURCHASE AGREEMENT' shall mean the Stock Purchase Agreement, dated January 1, 1995, between the Company, Cory and Brian Gamberg." "'CORY REPURCHASE' shall mean the purchase by the Company from Brian Gamberg of 25% of the outstanding capital stock of Cory pursuant to the Cory Purchase Agreement." "'NASSAU' shall mean Nassau Capital Partners L.P., a Delaware limited partnership, and NAS Partners I L.L.C., a Delaware limited liability company." "'NASSAU EQUITY INFUSION' shall mean the purchase by Nassau for cash, on or about the date of Amendment No 1 hereto, of shares of preferred stock of the Company and the Nassau Warrants for a purchase price equal to $6,500,000 pursuant to the Nassau Purchase Agreement." "'NASSAU/GAMBERG DEAL COSTS' shall mean all costs and expenses incurred by the Company and its subsidiaries in connection with the transactions contemplated by the Nassau Purchase Agreement and the Cory Purchase Agreement." "'NASSAU PURCHASE AGREEMENT' shall mean the Securities; Purchase Agreement dated as of February 20, 1996 among the Company and Nassau, as in existence on such date." "'NASSAU WARRANTS' shall mean the warrants to be acquired by Nassau pursuant to the terms of the Nassau Purchase Agreement." 2.2. AMENDMENTS TO DEFINITIONS. (a) The definition of "EBITDA" is hereby amended by replacing the second parenthetical phrase therein with the following: "(including, without limitation, (x) amortization of intangibles, (y) amortization of Deal Costs (to the extent that such Deal Costs do not exceed $2,500,000) and (z) amortization of Nassau/Gamberg Deal Costs (to the extent that such Nassau/Gamberg Deal Costs do not exceed $600,000) and legal expenses incurred prior to February 20, 1996 in connection with a derivative action against the Company and certain of its subsidiaries maintained by Brian Gamberg on behalf of Cory (to the extent that such legal expenses do not exceed $350,000))". (b) The definition of "EBITDA Ratio" is hereby amended by adding the following proviso immediately prior to the end of such definition: "; provided, that with respect to any date prior to December 31, 1996, 'EBITDA Ratio' shall mean the ratio of (a) all Debt of the Company and the Subsidiary -2- Guarantors at such time to (b) the product of (x) EBITDA for the period commencing on January 1, 1996 and ending on the fiscal quarter ending on or most recently ended prior to such date and (y) the Applicable Annualization Factor". (c) The definition of "Fixed Charges Ratio" is hereby amended by deleting the parenthetical in clause "(a)" thereof and adding the following proviso immediately prior to the end of such definition: "; provided, that with respect to any date prior to December 31, 1996, 'Fixed Charges Ratio' shall mean the ratio of (x) Cash Flow for the period commencing on January 1, 1996 and ending on the fiscal quarter ending on or most recently ended prior to such date to (y) Debt Service for such period". (d) The definition of "Interest Expense" is hereby amended by relettering the existing clause "(b)" thereof as clause "(c)", deleting the word "and" at the end of clause "(a)" and by adding the following new clause "(b)": "(b) the aggregate amount payable by the Company pursuant to Section 11.09 of the Credit Agreement (whether or not actually paid) during such period, and". (e) The definition of "Net Worth" is hereby amended by replacing clause "(e)" thereof in its entirety with the following: " (e) the value ascribed to the Warrants, the Additional Warrants and the Nassau Warrants and the cumulative effect of any change in the valuation of the Warrants, the Additional Warrants and the Nassau Warrants, plus". 2.3. NO LIMIT ON CORY OBLIGATIONS. (a) The parenthetical in the definition of "Subsidiary Guarantors" is hereby deleted. (b) The proviso at the end of the first sentence of Section 14H is hereby deleted. (c) Section 14I is hereby deleted in its entirety. 2.4. CORY REPURCHASE. (a) The Purchasers hereby waive the provisions of Sections 7B, 7C, 7E, 7F and 7G of the Securities Purchase Agreement to the extent necessary to permit the Cory Repurchase. (b) Section 7C of the Securities Purchase Agreement is hereby amended by adding the following at the end thereof: -3- "; provided, further, that nothing contained in this paragraph 7C shall prevent the Company from purchasing capital stock of Cory pursuant to the Cory Purchase Agreement". (c) Section 7B of the Securities Purchase Agreement is hereby amended by renumbering the existing clause "(vi)" as clause "(vii)", by deleting the word "and" at the end of clause (v), and by adding the following new clause (vi) thereto: " (vi) Debt in an aggregate amount not to exceed $600,000 consisting of obligations to Brian Gamberg under the Restrictive Covenant Agreement referred to in the Cory Purchase Agreement; and". 2.5. FINANCIAL COVENANTS (SCHEDULES). (a) The Purchasers hereby waive compliance by the Company with Sections 7(A)(i), 7(A)(ii), 7(A)(iii) and 7(A)(iv) of the Securities Purchase Agreement for each of the periods through and including December 31, 1995. (b) Each of Schedules 7A(i), 7A(ii), 7a(iii) and 7A(iv) to the Securities Purchase Agreement is hereby amended for, all periods after December 31, 1995 to read as set forth on Schedules 7A(i), 7A(ii), 7a(iii) and 7A(iv), respectively, to this Amendment. 2.6. INTEREST RATE PROTECTION; COMMODITY PRICE PROTECTION. Section 7G of the Securities Purchase Agreement is hereby amended by renumbering the existing clause "(ii)" as clause "(iii)", by deleting the word "and" at the end of clause (i), and by adding the following new clause (ii) thereto: " (ii) the Company may invest in Interest Rate Protection Agreements (as such term is defined in the Credit Agreement) and Commodity Price Protection Agreements (as such term is defined in the Credit Agreement) as required by the terms of the Credit Agreement; and". 2.7. WAIVER OF AMENDMENT TO CHARTER. The Purchasers hereby waive compliance by the Company with Section 7K of the Securities Purchase Agreement to the extent required to consummate the transactions contemplated by the Nassau Purchase Agreement. 2.8. ADVISORY FEE. Section 15 of the Securities Purchase Agreement is hereby amended in its entirety to read as follows: "For so long as the Purchasers hold any Note, any Warrant exchangeable into at least 2% of the issued and outstanding Common Stock on a Fully Diluted basis, or at least 2% of the issued and outstanding Common Stock on a Fully Diluted basis, the Company will pay to -4- Electra in cash an annual fee (the "Advisory Fee") in the amount of $100,000, payable in advance in equal quarterly installments on the first Business Day of each January, April, July and October; provided, that if the Purchasers no longer hold any Note and an Initial Public Offering has occurred no Advisory Fee will be payable. In addition, on the date of Amendment No. 1 hereto, the Company will pay to Electra a pro rated amount of the quarterly installment for the period commencing January 1, 1996." 2.9. WAIVER OF ANTI-DILUTION ADJUSTMENTS. The Purchasers hereby waive all anti-dilution adjustments contained in the Securities Purchase Agreement and each of the Warrants which would otherwise result from the initial issuance of securities pursuant to the Nassau Purchase Agreement. 2.10. PUT. Section 16C of the Securities Purchase Agreement is hereby amended in its entirety to read as follows: " 16C. PUT. (a)(i) If no Triggering Event shall have occurred by December 31, 2000, then the Purchasers or other holder of the Warrants may, at any time thereafter, by giving written notice to the Company (the "Put Notice"), require the Company to repurchase (the "Put") all or any portion of the Warrants held by the Purchasers or other holder of the Warrants for an amount equal to the Put Amount and corresponding to that number of shares of Common Stock then issuable upon exercise of the Warrants designated in the Put Notice. The Company shall pay to the Purchasers the Put Amount in full in cash within 30 days of the date of the Put, or if sooner, at the same time payment is required by the terms of the Nassau Warrants, the ING Warrant or the Provident Warrant. (ii) Immediately upon receipt of (i) a Put Notice or (ii) notice, whether prior to or after December 31, 2000, from the holders of any of the Nassau Warrants, the ING Warrant, the Provident Warrant or the Banc One Warrant (such holders being referred to herein collectively as the "Put Holders") that the Purchasers or such Put Holders intend to exercise put rights in connection with the repurchase of any of their warrants by the Company, the Company shall, before repurchasing any such warrants, give written notice thereof to the Purchasers and/or all other Put Holders, as the case may be. For a period of twenty (20) days following receipt of such notice, the Purchasers and each Put Holder shall be entitled, by written notice to the Company, the Purchasers and/or each Put Holder, as the case may be, to elect to require the Company to repurchase for cash its pro rata share (on the basis of the number of shares of Common Stock then issuable upon -5- exercise of all of the warrants held by the Purchasers and each such Put Holder) of the warrants held by the Purchasers and each such Put Holder. If, at the expiration of such twenty-day period the Purchasers or any Put Holders have not elected to have the Company repurchase their warrants, the Company shall repurchase only those warrants for which notice has been received and shall pay the Put Amount in full in cash within ten (10) days of the above-described twenty-day period. (iii) If the Company shall not have funds legally available in the amount necessary to repurchase all warrants of the Purchasers and Put Holders with respect to which notice has been received, then such warrants shall be repurchased by the Company in the following order of priority: (A) first, on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of all of the warrants held by the Purchasers, ING and Provident, and (B) second, to the extent funds are legally available therefor and subject to the prior payment in full of the Electra, ING and Provident warrants, on a pro rata basis in accordance with the number of shares of Common Stock then issuable upon exercise of all of the warrants held by each other Put Holder. (b) If, prior to December 31, 2000, any Put Holder notifies the Company that such Put Holder intends to exercise put rights in connection with the repurchase of any of its warrants by the Company, the Company shall, before repurchasing any such warrants, give written notice thereof to the Purchasers and all other Put Holders. For a period of twenty (20) days following receipt of such notice, the Purchasers shall be entitled, by written notice to the Company and each Put Holder, to elect to require the Company to repurchase the Warrants for cash at a price equal to the Put Amount (c) Any Put not satisfied in full in cash shall remain an obligation of the Company and shall bear interest, which interest shall be paid together with any payment of the Put Amount, at a rate of 14% per annum." 2.11. PREPAYMENT FEES. The Securities Purchase Agreement is hereby amended by adding the following new Section 5F: " 5F. PREPAYMENT FEES. The Company hereby agrees to pay the following prepayment fees: (a) A prepayment fee of $140,000 shall be due and payable by the Company to Electra upon -6- repayment of all of the principal and interest on the Notes (whether pursuant to paragraph 5A or paragraph 5B hereof or otherwise) if the same shall occur on or prior to February 15, 1997. (b) A prepayment fee of $70,000 shall be due and payable by the Company to Electra upon repayment of all of the principal and interest on the Notes (whether pursuant to paragraph 5A or paragraph 5B hereof or otherwise) if the same shall occur after February 15, 1997 and on or prior to February 15, 1998. Notwithstanding the foregoing, no such prepayment fee shall be payable upon repayment of all principal and interest on the Notes pursuant to paragraph 5A(ii) hereof in connection with an Initial Public Offering." Section 3. CONDITIONS PRECEDENT. This Amendment shall become effective as of the date (the "EFFECTIVE DATE") that each of the conditions precedent set forth below shall have been fulfilled to the satisfaction of each of the Purchasers: (a) DELIVERY OF AMENDMENT. The Purchasers shall have received a counterpart of this Amendment duly executed by the Company and the Subsidiary Guarantors. (b) DELIVERY OF ADVISORY AMENDMENT. The Purchasers shall have received a counterpart of the Amendment No. 1 to Advisory Agreement in form and substance satisfactory to the Purchasers and duly executed by the Company. (c) NO DEFAULT. On and as of the Effective Date, and after giving effect to this Amendment, no Default or Event of Default under the Securities Purchase Agreement shall have occurred and be continuing. (d) CREDIT AGREEMENT: OTHER DOCUMENTS. The Purchasers shall have received a true and correct copy of all amendments, waivers and consents applicable to the Senior Debt, in form and substance satisfactory to the Purchasers. In addition, the Purchasers shall have received a true and correct copy of the Cory Purchase Agreement, the Nassau Purchase Agreement, the Nassau Warrants and all documents and agreements related thereto, each in form and substance satisfactory to the Purchasers. (e) EQUITY PROCEEDS: DEAL COSTS. The Purchasers shall have received satisfactory evidence that (a) the Company has received from Nassau cash proceeds of at least $6,500,000 from the Nassau Equity Infusion, (b) the aggregate amount of Nassau/Gamberg Deal Costs do not and will not substantially exceed $600,000 and (c) the proceeds of the Nassau Equity Infusion will be sufficient to pay substantially all of the Nassau/Gamberg Deal Costs. -7- (f) FEES AND EXPENSES. Electra shall have received a fee in the amount of $25,000. In addition, the Company shall have paid or reimbursed Electra for its out-of-pocket costs and expenses, and for the fees and expenses of Willkie Farr & Gallagher, counsel to the Purchasers and Electra, in connection with this Amendment and any other documents prepared in connection herewith and the transactions contemplated hereby. Section 4. REPRESENTATION AND WARRANTY. To induce the Purchasers to enter into this Amendment, the Company hereby represents and warrants to the Purchasers that the representations and warranties made by the Company in the Securities Purchase Agreement are true and correct in all material respects on and as of the Effective Date after giving effect to the effectiveness of this Amendment, as if made on and as of the Effective Date, unless expressly stated to relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. References in such representations and warranties to the Securities Purchase Agreement shall be deemed to be references to the Securities Purchase Agreement as amended by this Amendment. Section 5. MISCELLANEOUS. (a) The Company hereby confirms that, except as expressly provided in this Amendment, all of the representations, warranties, terms, covenants and conditions of the Securities Purchase Agreement and the Warrants shall remain unwaived and shall continue to be in full force and effect in accordance with their respective terms. The amendments, waivers and consents provided herein shall be limited precisely as provided herein and shall not be deemed to be an amendment to, waiver of or consent to any other provision of the Securities Purchase Agreement or the Warrants, or of any transaction or further or future action on the part of the Company or any other Person which would require the consent of the Purchasers under the Securities Purchase Agreement or the Warrants or any other instrument. (b) This Amendment may be executed in any number of counterparts by the parties hereto and all of said counterparts when taken together shall be deemed to constitute one and the same instrument. -8- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rank ------------------------------------- Name: Title: ELECTRA INVESTMENT TRUST P.L.C. By: ------------------------------------- Name: Title: ELECTRA ASSOCIATES, INC. By: ------------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------- Name: Title: ELECTRA INVESTMENT TRUST P.L.C. By: /s/ [ILLEGIBLE] ------------------------------------- Name: Title: ELECTRA ASSOCIATES, INC. By: /s/ [ILLEGIBLE] /s/ RJ Lewis ------------------------------------- Name: Title: SUBSIDIARY GUARANTORS: CORY COMPONENTS, INC. By: /s/ Robert Rank ------------------------------- Name: Title: CORY HOLDINGS, INC. By: /s/ Robert Rank ------------------------------- Name: Title: TRI-STAR TECHNOLOGIES By: Tri-Star Technologies, Inc., its General Partner By: /s/ Robert Rank ------------------------------- Name: Title: TRI-STAR TECHNOLOGIES, INC. By: /s/ Robert Rank ------------------------------- Name: Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: /s/ Robert Rank ------------------------------- Name: Title: TRI-STAR HOLDINGS, INC. By: /s/ Robert Rank ------------------------------- Name: Title: UNIDEC S.A. By: ------------------------------- Name: Title. SUBSIDIARY GUARANTORS: CORY COMPONENTS, INC. By: ------------------------------- Name: Title: CORY HOLDINGS, INC. By: ------------------------------- Name: Title: TRI-STAR TECHNOLOGIES By: Tri-Star Technologies, Inc., its General Partner By: ------------------------------- Name: Title: TRI-STAR TECHNOLOGIES, INC. By: ------------------------------- Name: Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: ------------------------------- Name: Title: TRI-STAR HOLDINGS, INC. By: ------------------------------- Name: Title: UNIDEC S.A. By: /s/ [ILLEGIBLE] ------------------------------- Name: Title: HOLLINGSEAD INTERNATIONAL LIMITED By: /s/ Robert Rank ------------------------------- Name: Title: HOLLINGSEAD INTERNATIONAL, INC. By: /s/ Robert Rank ------------------------------- Name: Title: Schedule 7A(i) Leverage Ratio The Company and the Subsidiary Guarantors will not permit the Leverage Ratio to exceed the following respective ratios at any time during the following respective periods. PERIOD RATIO ------ ----- From January 1, 1996 through March 30, 1996 12.10 to 1 From March 31, 1996 through June 29, 1996 3.98 to 1 From June 30, 1996 through September 29, 1996 3.82 to 1 From September 30, 1996 through December 30, 1996 3.38 to 1 From December 31, 1996 through March 30, 1996 2.84 to 1 From March 31, 1997 through June 30, 1997 4.29 to 1 From July 1, 1997 through December 31, 1997 3.30 to 1 From January 1, 1998 through June 30, 1998 3.03 to 1 From July 1, 1998 through December 31, 1998 2.48 to 1 From January 1, 1999 and at all times thereafter 2.20 to 1 Schedule 7A(ii) EBITDA Ratio The Company and the Subsidiary Guarantors will not permit the EBITDA Ratio to exceed the following respective ratios at any time during the following respective periods: PERIOD RATIO ------ ----- From March 31, 1996 through June 29, 1996 7.86 to 1 From June 30, 1996 through September 29, 1996 5.38 to 1 From September 30, 1996 through December 30, 1996 4.05 to 1 From December 31, 1996 through March 30, 1997 3.27 to 1 From March 31, 1997 through June 30, 1997 2.53 to 1 From July 1, 1997 through December 31, 1997 2.20 to 1 From January 1, 1998 through December 31, 1998 1.93 to 1 From January 1, 1999 and at all times thereafter 1.65 to 1 Schedule 7A(iii) Net Worth The Company will not permit its Net worth to be less than the following respective amounts at any time during the following respective periods: PERIOD AMOUNT ------ ------ From January 1, 1996 through March 30, 1996 $ 2,700,000 From March 31, 1996 through June 29, 1996 $ 8,929,800 From June 30, 1996 through September 29, 1996 $ 9,255,600 From September 30, 1996 through December 30, 1996 $10,102,500 From December 31, 1996 through March 30, 1997 $11,169,000 From March 31, 1997 through June 30, 1997 $ 8,100,000 From July 1, 1997 through December 31, 1997 $ 9,450,000 From January 1, 1998 through June 30, 1998 $11,700,000 From July 1, 1998 through December 31, 1998 $13,725,000 From January 1, 1999 and at all times thereafter $15,750,000 Schedule 7A(iv) Fixed Charges Ratio The Company and the Subsidiary Guarantors will not permit the Fixed Charges Ratio to be less than the following respective ratios at any time during the following respective periods: PERIOD RATIO ------ ----- From March 31, 1996 through June 29, 1996 0.234 to 1 From June 30, 1996 through September 29, 1996 0.666 to 1 From September 30, 1996 through December 30, 1996 0.891 to 1 From December 31, 1996 through March 30, 1997 1.089 to 1 From March 31, 1997 through June 30, 1997 1.035 to 1 From July 1, 1997 through December 31, 1997 1.215 to 1 From January 1, 1998 and at all times thereafter 1.350 to 1 EX-10.25 25 EXHIBIT 10.25 D.A.H., INC. 2201 Rosecrans Avenue El Segundo, California 9025 (310) 536-0444 Fax (310)536-9322 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- November 28, 1994 Mr. Charles H. Becker 303 Williams Road Fort Washington, PA 19034 Dear Chuck: I am pleased to offer you the position of President of Tri-Star Electronics International, Inc,. As President of Tri-Star Electronics International, you would report directly to me. You would be responsible for all functions of Tri-Star with the exception of Treasury. Reporting to you would be the following: Tri-Star Chief Financial Officer, the Vice President of Sales & Marketing, Director of Engineering, Supervisor of Human Resources, Director of Operations, Director of Quality Assurance and the Director of Materials Management. The total compensation package we are prepared to offer is as follows: - Base salary would be $140,000.00 per annum. - Incentive Bonus as follows: Percentage of Plan Incentive Bonus as a EBIT Attainment Percent of Base Salary ------------------- ---------------------- 80 10% 90 20% 100 30% 110 40% You would also be granted stock options in D.A.H. for 50,000 shares that would vest in equal increments over five years, with the first vesting occurring 12 months following your hire date. These are qualified ISOs under IRS Regs at a nominal exercise price of 15 cents per share. Page Two Mr. Charles H. Becker November 28, 1994 We would also provide you with six months severance pay at your base rate that would be valid under circumstances of involuntary termination other than termination for cause. In terms of your moving and relocation expenses, we would offer you the following: - Up to six months temporary living allowance not to exceed a maximum of $1,000.00 a month. - Actual cost of selling your home in PA, and relocation of household goods from Pennsylvania to California not to exceed $40,000.00. - Other expenses related to the acquiring of a home in California in an amount not to exceed $5,000.00. We also discussed 100% vesting of stock options under a change of control or IPO. This is an area that Jack DeCrane is currently reviewing for all of Senior Management with the Compensation Committee of the Board of Directors but we are unable to either offer or guarantee anything under this arrangement today. You would be covered under our Executive Benefits Program about which we are enclosing copies via Federal Express to your home along with two originals of this offer for you to sign, retaining one and returning the other. Sincerely, /s/ R.G. MacDonald R.G. MacDonald President RGM/kj AGREED & ACCEPTED: /s/ Charles H. Becker November 29, 1994 - ----------------------------------- ----------------- Charles H. Becker Date COMPANY'S EMPLOYEE ACKNOWLEDGEMENT I acknowledge that I have received a copy of the Company's Code of Business Ethics. I have read and do understand the Code of Business Ethics and all of my questions concerning the same have been answered to my satisfaction. I understand that I must abide by the terms of the Code of Business Ethics, as well as state and federal laws and regulations, as a condition of my continued employment with the Company. Date: 11-30-94 C. H. Becker ---------- ---------------------- (Print Name) /s/ C. H. Becker ---------------------- (Signature) EX-10.26 26 EXHIBIT 10.26 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE LIMITATIONS ON TRANSFER SET FORTH IN THE FOURTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 18, 1996, BETWEEN THE CORPORATION AND CERTAIN HOLDERS OF THE CORPORATION'S SECURITIES. A COPY OF THE FOURTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE CORPORATION. DECRANE AIRCRAFT HOLDINGS, INC. No. 96-ING September 18, 1996 COMMON STOCK PURCHASE WARRANT THIS CERTIFIES that INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation, is entitled to purchase from DECRANE AIRCRAFT HOLDINGS, INC, an Ohio corporation (the "Corporation"), for value received, 187,500 shares of the Common Shares, without par value (the "Common Stock") of the Corporation at the price (the "Exercise Price") of $4 per share, at any time or from time to time during the period commencing on the Closing Date and ending at 5:00 P.M. on the tenth anniversary of the Closing Date (the "Expiration Date"); PROVIDED, HOWEVER, that this Warrant may not be exercised for Common Stock by any Regulated Holder to the extent that such exercise will result in a violation of any Applicable Law. Reference is made to the Amended and Restated Credit Agreement (as the same may be amended from time to time, the "Amended Restated Credit Agreement") among the Corporation (in such capacity, the "Borrower"), the Lenders (as defined therein), and Internationale Nederlanden (U.S.) Capital Corporation ("ING"), as agent for the Lenders. In order to induce ING to enter into the Amended and Restated Credit Agreement and to make certain loans and provide other financial accommodations to the Borrower thereunder, the Corporation has agreed to issue to ING this warrant (this "Warrant") to purchase Common Stock of the Corporation. ARTICLE I DEFINITIONS SECTION 1.1. DEFINITIONS. As used in this Warrant, the following terms shall have the following meanings: "AFFILIATE" shall mean, with respect to any person, any Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with such Person. "ALLOCABLE NUMBER" shall have the meaning given to such term in Section 4.2. "AMENDED AND RESTATED CREDIT AGREEMENT" shall have the meaning given to such term in the Preamble. "APPLICABLE LAW" shall mean all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to the Person in question or any of its assets or property, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party or by which any of its assets or properties are bound. "ASSET SALE" shall mean (a) the sale of all or substantially all of the assets of the Corporation or (b) a merger or consolidation of or otherwise involving the Corporation (other than a merger or consolidation solely involving a merger of a wholly-owned Subsidiary of the Corporation with or into another wholly-owned Subsidiary of the Corporation). "BORROWER" shall have the meaning given to such term in the preamble. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on which banks are authorized or required to be closed in New York, New York; PROVIDED, HOWEVER, that any determination of a Business Day relating to a securities exchange shall mean a Business Day on which such exchange is open for trading. "CALL" shall have the meaning given to such term in Section 5.3 hereof. "CALL CLOSING" shall have the meaning given to such term in Section 5.3 hereof. "CALL NOTICE" shall have the meaning given to such term in Section 5.3 hereof. "CALL PRICE" shall mean 120% of the Put Market Value Per Share; PROVIDED, HOWEVER, that if at the time of determination of the Call Price, Warrant Shares shall consist in any part of securities or property other than Common Stock, the Call Price shall include a cash amount per Warrant Share equal to that portion of the fair value (determined in accordance with the Valuation Procedure) of such securities or property allocable to each Warrant Share. "CHANGE OF CONTROL" shall mean an Event of Default specified in Section 10(k) of the Amended and Restated Credit Agreement. "CLOSING DATE" shall mean September 18, 1996. "COMMISSION" shall mean the Securities and Exchange Commission (or a successor thereto). "COMMON STOCK" shall have the meaning specified in the Preamble. "CONTROL" shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "CONVERTIBLE SECURITIES" shall have the meaning given to such term in Section 4.4.1(b). "CORPORATION" shall have the meaning given to such term in the Preamble. "DELIVERY DATE" shall have the meaning given to such term in Section 4.3(a). -2- "EQUIVALENT NONVOTING SECURITY", with respect to any security (a "first security") issued or to be issued by any Person, shall mean a security (an "equivalent security") of such Person that is identical in rights and benefits to such first security, except that (a) the equivalent security shall not be entitled to vote on any matter on which holders of voting securities of such Person are entitled to vote, other than as required by Applicable Law or with respect to any amendment or repeal of any provision of the Organizational Documents of such Person or any other agreement or instrument pursuant to which the equivalent security was issued which provision specifically affects such equivalent security, (b) subject to such reasonable restrictions as any affected Regulated Holder may request (including, without limitation, any restriction necessary to prevent the violation by such Regulated Holder of any provision of Applicable Law with respect to its Ownership of voting securities), the equivalent security shall be convertible in a one-to-one ratio into the first security and (c) the terms of the equivalent security shall include such provisions requested by any affected Regulated Holder as are reasonable and equitable to ensure that (i) the equivalent security is treated comparably to the first security with respect to dividends, distributions, stock splits, reclassifications, capital reorganizations, mergers, consolidations and other similar events and transactions, (ii) the conversion right provided in clause (b) above is equitably protected and (iii) the acquisition of the equivalent security will not cause such Regulated Holder to violate Applicable Law. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXCHANGE FORM" shall mean an exchange form satisfactory to the Corporation (in its reasonable judgment). "EXCLUDED SECURITIES" shall mean: (i) shares of capital stock issued pursuant to a stock dividend or a stock split or other subdivision of shares; (ii) Common Stock issued upon (A) conversion or exercise of any of the Corporation's convertible preferred stock outstanding at the Closing Date, or (B) exercise of the Warrants or upon exercise of any warrants issued in connection with a refinancing of the obligations of the Borrower under the Amended and Restated Credit Agreement; (iii) securities issued by the Corporation in a Qualified Public Offering; (iv) securities issued pursuant to the direct or indirect BONA FIDE acquisition by the Corporation of any Person, whether by merger, purchase of stock, purchase of assets or otherwise; (v) securities issued upon exercise of conversion or exchange rights, options or subscription calls, warrants, commitments or claims, provided that the foregoing are outstanding on the Closing Date or are issued hereafter in compliance with Section 5.2 hereof, and (i) Common Stock or options to purchase Common Stock issued to directors, officers, employees or consultants of the Corporation or the issuance of Common Stock upon the exercise of any such options; PROVIDED, HOWEVER, that the aggregate amounts of all such Common Stock or Common Stock which may be acquired upon the exercise of such options shall not exceed an aggregate of 17.05% of the Common Stock (on a Fully-Diluted Basis). "EXECUTIVE OFFICER" shall mean, with respect to the Corporation, its Chairman or President. "EXERCISE FORM" shall mean an exercise form satisfactory to the Corporation (in its reasonable judgment). -3- "EXERCISE PRICE" shall mean $4 per share of Common Stock, subject to adjustment from time to time in the manner provided in Section 4.4. "EXPIRATION DATE" shall mean the tenth anniversary of the Closing Date. "FINANCIAL OFFICER" shall mean the Chief Financial Officer, Treasurer or Assistant Treasurer of the Corporation. "FISCAL YEAR" shall mean, with respect to the Corporation, the one-year period ending on December 31 of any year. "FULLY DILUTED STOCKS" means, as applied to the calculation of the number of shares of Common Stock outstanding at any time, after giving effect to (a) all shares of Common Stock outstanding at the time of determination, (b) all shares of Common Stock issuable upon the exercise of any option, warrant (including the Warrants) or similar right to purchase Common Stock outstanding at the time of determination and then exercisable at a per share price equal to or less than the price per share of Common Stock being determined and (c) all shares of Common Stock issuable upon the conversion or exchange of any security convertible into or exchangeable for shares of Common Stock outstanding at the time of determination and then so convertible or exchangeable at a conversion or exchange price equal to or less than the price per share of Common Stock being determined. Such calculation will not be made in accordance with the "treasury method." "GAAP" shall have the meaning specified in the Amended and Restated Credit Agreement. "GOVERNMENTAL AUTHORITY" shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or foreign. "HOLDER" shall have the meaning given to such term in Section 3.1. "ING" shall have the meaning given to such term in the Preamble. "IPO PRICE" shall mean the price per Common Share at which the Common Stock is offered in any Qualified Public Offering. "LIQUIDATION EQUIVALENT" shall mean the per share cash amount, determined in accordance with the Valuation Procedure, which would be paid to holders of Common Stock outstanding (on a Fully-Diluted Basis) on the date of determination assuming (a) the actual receipt by the Corporation of the Corporation, as applicable, of the full amount of the consideration proposed to be paid or exchanged for the capital stock or assets of the Corporation in the relevant transaction (net of reasonable expenses incurred in connection with such transaction which are payable to Persons who or which are not Affiliates of Major Stockholder) and (b) the liquidation of the Corporation and all of its Subsidiaries immediately thereafter. For the purposes of determining the Liquidation Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully-Diluted Basis, shall be deemed to have been received by the Corporation and (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis, shall be deemed to have been eliminated or cancelled. If any transaction requiring the determination and payment of the Liquidation Equivalent shall involve a purchase price adjustment based on the closing balance sheet of the Corporation or any of its Subsidiaries as of the closing date of such transaction, which results in a reduction in the purchase price, each Holder shall be obligated to remit to the purchaser such Holder's PRO RATA share of such amount, unless the amount of such adjustment has not been finally determined -4- within 180 days following the closing of such transaction, in which case each Holder shall be obligated to remit to such purchaser such Holder's PRO RATA share of the amount of such adjustment (as finally determined). Each Holder shall be entitled to receive its full PRO RATA share of any adjustment in favor of the sellers in a transaction involving a purchase price adjustment when and as paid to all such Holders. "MARKET PRICE" shall mean, with respect to a share of Common Stock on any Business Day, the Market Value Per Share. "MARKET VALUE" shall mean the highest of (i) the net book value as determined by reference to the Corporation's financial statements for the most recently ended fiscal quarter, or (ii) or an amount equal to (y) the product of (A) 5.67 and (B) the Corporation's EBITDA (as defined in the Amended and Restated Credit Agreement) LESS Capital Expenditures (as defined in the Amended and Restated Credit Agreement) permitted under the Amended and Restated Credit Agreements and the Securities Purchase Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, LESS (x) amounts outstanding under the Amended and Restated Credit Agreement and the Securities Purchase Agreement, or (iii) the price that would be paid for the entire common equity interest in the Corporation on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the Valuation Procedures, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale. For the purposes of determining the Market Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a fully Diluted Basis, shall be deemed to have been received by the Corporation, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any liquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the Stockholders, shall be deemed to have been eliminated or cancelled. "MARKET VALUE PER SHARE" shall mean the price per share of Common Stock obtained by dividing (A) the Market Value by (B) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) at the time of determination. "OPTIONS" shall have the meaning given to such term in Section 4.4.1(b) hereof. "ORGANIZATIONAL DOCUMENTS" shall mean, with respect to any Person, each instrument or other document that (a) defines the existence of such Person, including its articles or certificate of incorporation, as filed or recorded with an applicable Governmental Authority or (b) governs the internal affairs of such Person, including its by-laws, in each case as amended, supplemented or restated. "OTHER ANTI-DILUTION INSTRUMENTS" shall mean any option, warrant, convertible security or other rights to acquire Common Stock, whether outstanding as of the Closing Date or hereafter issued, together with any agreements relating thereto, which provide for anti-dilution or other adjustments in the number of shares of Common Stock and/or exercise or conversion price, EXCEPT for anti-dilution or other adjustment rights provided under the Senior Subordinate Documents. "OWN" shall mean, with respect to any security, to own, hold or Control. Owns and Ownership shall have correlative meanings. "PARTICIPATION NOTICE" shall have the meaning given to such term in Section 5.2(b) hereof. -5- "PARTICIPATION PERIOD" shall have the meaning given to such term in Section 5.2(b) hereof. "PERSON" shall mean and include any natural person, company, partnership, joint venture, corporation, business trust or unincorporated organization. "PROPERTY" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "PROPORTIONATE PERCENTAGE" shall mean, with respect to any Holder at any time, the quotient obtained by dividing (a) the aggregate number of Warrant Shares then held by such Holder by (b) the total number of shares of Common Stock then outstanding (on a Fully-Diluted Basis). "PUT" shall have the meaning given to such term in Section 5.2 hereof. "PUT CLOSING" shall have the meaning given to such term in Section 5.3 hereof. "PUT EVENT" shall mean any of the following: (a) a Change of Control; (b) as Asset Sale; (c) the repayment in full of all borrowings under the Amended and Restated Credit Agreement and the termination of all borrowing commitments other than in connection with any transaction otherwise constituting a Put Event or any transaction constituting a Call Event or the acceleration of all borrowings under the Amended and Restated Credit Agreement; or (d) the filing of a registration statement under the Securities Act which relates to a Qualified Public Offering. "PUT EVENT NOTICE" shall have the meaning given to such term in Section 5.3 (a) hereof. "PUT MARKET PRICE" shall mean, with respect to a share of Common Stock on any Business Day, the Put Market Value Per Share. "PUT MARKET VALUE" shall mean the highest of the following: (i) the price that would be paid for the entire common equity interest in the Corporation on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the Valuation Procedures, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, (ii) the net book value of the Corporation determined by reference to the Corporation's financial statements as of the most recently ended fiscal quarter, or (iii) an amount equal to (A) six times earnings before interest, income taxes, depreciation and amortization (determined in accordance with GAAP) as of the 12 month period immediately preceding the most recently ended fiscal quarter MINUS (B) amounts outstanding under the Amended and Restated Credit Agreement and the Securities Purchase Agreement MINUS (C) any other indebtedness (as defined -6- in accordance with GAAP, but excluding obligations of the Corporation in respect of (w) this Warrant (x) the warrants issued in connection with the Original Credit Agreement (as that term is defined in the Amended and Restated Credit Agreement), (y) the warrants issued under the Senior Subordinate Agreement, ( ) the warrants issued under the Securities Purchase Agreement and the 1996 (September) Securities Purchase Agreement (as that term is defined in the Amended and Restated Credit Agreement) PLUS (D) cash and cash equivalents of the Corporation. For the purposes of determining the Put Market Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully-Diluted Basis, shall be deemed to have been received by the Corporation, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted Basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the Stockholders, shall be deemed to have been eliminated or cancelled. "PUT MARKET VALUE PER SHARE" shall mean the price per share of Common Stock obtained by dividing (A) the Put Market Value by (B) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) at the time of determination. "PUT NOTICE" shall have the meaning given to such term in Section 5.3(b) hereof. "PUT PRICE" shall mean the Put Market Value Per Share; PROVIDED, HOWEVER, that, if at the time of determination of the Put Price, Warrant Shares shall consist in any part of securities or property other than Common Stock, the Put Price shall include a cash amount per Warrant Share equal to that portion of the fair value (determined in accordance with the Valuation Procedure) of such securities or property allocable to each Warrant Share. "QUALIFIED PUBLIC OFFERING" shall mean an underwritten public offering of the Common Stock registered under the Securities Act, (a) which offering results in net proceeds to the Corporation of at least $25,000,000, and (b) after which the shares of Common Stock are Publicly Traded and shares of Common Stock held by persons other than Affiliates of the Corporation have a Market Price of at least $55,000,000. "REGISTRATION RIGHTS AGREEMENT" shall mean the Fourth Amended and Restated Registration Rights Agreement, dated as of September 18, 1996 among the Corporation and certain other parties thereto (as amended from time to time). "REGULATED HOLDER" shall mean any Holder subject to any provisions of Applicable Law (including without limitation the Bank Holding Company Act of 1956, as amended, (12 U.S.C. Section 1841 ET SEQ.) and the regulations promulgated thereunder) limiting the quantity of kind or securities (or any class thereof) of the Corporation which such Holder is permitted to Own. "SALE NOTICE" shall have the meaning given to such term in Section 3.3(d) hereof. "SECTION 7.4 TRANSACTION" shall have the meaning given to such term in Section 7.4. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SECURITIES PURCHASE AGREEMENT" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, among the Corporation, Electra Investment Trust P.L.C. and Electra Associates, Inc., as -7- [illegible] from time to time, and the Warrants to Purchase Common Stock of the Corporation, dated the date [illegible] to Electra Investment Trust PLC or its registered assigns and to Electra Associates, Inc. or its registered assigns. "SELLER NOTES" shall mean promissory notes issued by a transferee (or an Affiliate thereof) as [illegible] in connection with any transfer of stock and/or other assets. "SENIOR SUBORDINATE AGREEMENT" shall mean that certain Fifth Amendment to the Senior Subordinate [illegible] and Warrant Purchase Agreement, dated as of November 2, 1994, between the Corporation, Banc One [illegible] Partners Corporation and others party thereto "SENIOR SUBORDINATE DOCUMENTS" shall mean the Senior Subordinate Agreement and that certain Warrant Purchase Common Stock of DeCrane Aircraft Holdings, Inc., dated the date hereof, issued to Banc One [illegible] Partners Corporation or its registered assigns. "SHAREHOLDERS AGREEMENT" shall mean that certain Fourth Amended and Restated Shareholders Agreement, dated as of September 18, 1996, between the Corporation and certain holders of the Corporation's Securities. "SUBSIDIARY" shall mean, at any time, any Person of which more than fifty percent (50%) of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned directly or indirectly through one or more Subsidiaries, by the Corporation. "TRANSFER" shall mean any sale, transfer, assignment, or other disposition of any interest in, with or without consideration, any security (other than a pledge or hypothecation). "TRI-STAR TECHNOLOGIES" shall mean Tri-Star Technologies, a general partnership organized under the bylaws of the State of California. "UNIDEC" shall mean Tri-Star Electronics Europe S.A., Mezzovico (formerly known as, Unidec, S.A. Mezzovico), a corporation organized under the laws of Switzerland. "VALUATION PROCEDURE" shall mean, with respect to the determination of any amount or value required to be determined in accordance with such procedure, a determination (which shall be final and binding on the Corporation and the Holder) made (i) by agreement among the Corporation and the Holder within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected in accordance with the further provisions of this definition. If required, an Appraiser shall be selected within 10 days following the expiration of the 30-day period referred to above, either by agreement among the Corporation and the Holder or, in the absence of such Agreement, by lot from a list of four potential Appraisers remaining after the Corporation nominates three, the Holder nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Corporation and the Holder to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne by the Holder. As used herein, "Appraiser" shall mean a nationally-recognized investment banking firm. "WARRANT" shall mean any warrant issued in the form of this Warrant (except as provided in Section 3.3(b)), duly executed on behalf of the Corporation. "WARRANT REGISTER" shall have the meaning given to such term in Section 3.1. -8- Warrant in accordance with Section 4.1 or upon exchange of this [unreadable] other securities or other property issued or issuable upon any such exercise or exchange in accordance with this Warrant and (c) any securities of the Corporation distributed with respect to the securities referred to in the preceding clauses (a) and (b). As used in this Warrant, the phrase "Warrant Shares then held" by any Holder or Holders shall mean Warrant Shares held at the time of determination by such Holder or Holders, and shall include Warrant Shares issuable upon exercise of Warrants held at the time of determination by such Holder or Holders. SECTION 1.2. INTERPRETATION. Unless the context of this Warrant clearly require otherwise, references to the plural include the singular, to the singular include the plural, and to the part include the whole. The term "including" is not limiting and the term "or" has the inclusive meaning represented by the term "and/or." The words "hereof," "herein," "hereunder," and similar terms in this Warrant refer to this Warrant as a whole and not to any particular provisions of this Warrant. References to "Articles," "Sections," "Subsections," "Exhibits," and "Schedules" are to Articles, Sections, Subsections, Exhibits and Schedules, respectively, of this Warrant, unless otherwise specifically provided. Terms defined herein may be used in the singular or the plural. Any capitalized terms used herein which are not specifically defined herein have the meaning given to them in the Amended and Restated Credit Agreement. ARTICLE II ISSUANCE OF WARRANT; CLOSING SECTION 2.1. ISSUANCE OF WARRANT. This Warrant evidences the right to purchase, on or before 5:00 p.m. on the Expiration Date, a total of 187,500 shares of Common Stock of the Corporation as a price per share equal to the Exercise Price. At the Closing Date, such shares of Common Stock represent 62.1% of the outstanding shares of Common Stock and 1.575% of the outstanding shares of Common Stock on a fully diluted basis (which determination (a) assumes the exercise of all outstanding options or Convertible Securities, whether or not currently exercisable or convertible, and irrespective of the exercise or conversion price and other related terms, and (b) not be made in accordance with the "treasury method"). The number of Warrant Shares which may be purchased upon exercise of such Warrant and the Exercise Price to be paid for such Warrant Shares are subject to adjustment in the manner provided in Article 4. ARTICLE III REGISTRATION; EXCHANGE; TRANSFER; TAXES SECTION 3.1. FORM OF WARRANT. The Company shall register this Warrant in a warrant register (the "Warrant Register"). The Warrant Register shall set forth the number of this Warrant, the name and address of the holder (a "Holder"), and the original number of Warrant Shares purchasable upon the exercise hereof. The Warrant Register will be maintained by the Corporation and will be available for inspection by any Holder at the principal office of the Corporation or such other location as the Corporation may designate to the Holders in the manner set forth in Section 9.1. The Corporation shall be entitled to treat the Holder of this Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other persons. The Corporation shall not be liable for complying with a request by a fiduciary or nominee of a fiduciary to register a transfer of this Warrant which is registered in the name of such fiduciary or nominee, unless made with the actual knowledge that such fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that the Corporation's participation therein amounts to bad faith. -9- SECTION 3.2. EXCHANGE OF WARRANT FOR WARRANTS. (a) The Holder may exchange this Warrant for another Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant to this Warrant. In order to effect an exchange permitted by this Section 3.2, the Holder shall deliver to the Corporation this Warrant accompanied by a written request signed by the Holder thereof specifying the number and denominations of Warrants to be issued in such exchange and the names in which such Warrants are to be issued. Within ten (10) Business Days of receipt of such a request, the Corporation shall issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange. (b) Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Corporation (if the Holder is a creditworthy financial institution or other creditworthy institutional investor its own agreement being satisfactory) or, in the case of any such mutilation, upon surrender of this Warrant, the Corporation shall (at its expense) execute and deliver in lieu of this Warrant a new Warrant representing the same rights represented by and dated the date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant shall constitute an original contractual obligation of the Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person. (c) The Corporation shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of this Warrant) attributable to an exchange of this Warrant pursuant to this Section 3.2; PROVIDED, HOWEVER, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrant in a name other than that of the Holder of this Warrant. SECTION 3.3. TRANSFER WARRANT. (a) Subject to Section 3.3(c) hereof, this Warrant may be transferred by the Holder by delivering to the Corporation this Warrant accompanied by a properly completed Assignment Form. Within ten (10) Business Days of receipt of such Assignment Form the Corporation shall issue, register and deliver to the Holder, subject to Section 3(c) thereof a new Warrant or Warrants of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares which could be purchased pursuant this Warrant. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Corporation. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced and may be required to be deposited and remain with the Corporation in its discretion. (b) Each Warrant issued in accordance with this Section 3.3 shall bear the restrictive legend set forth on this Warrant, unless the Holder or transferee thereof supplies to the Corporation an opinion of counsel, reasonably satisfactory to the Corporation, that the restrictions described in such legend are no longer applicable to such Warrant. (c) The transfer Warrants and Warrant Shares shall be permitted, so long as such transfer is pursuant to a transaction that complies with, or is exempt from, the provisions of the Securities Act, and the Corporation may require an opinion of counsel (which may be internal counsel to a Holder) in form and substance reasonably satisfactory to it to such effect prior to effecting any transfer of Warrants or Warrant Shares. -10- ARTICLE IV EXERCISE OF WARRANT: EXCHANGE FOR WARRANT SHARES SECTION 4.1. EXERCISE OF WARRANTS. On any Business Day prior to the Expiration Date, a Holder may exercise this Warrant, in whole or in part, by delivering to the Corporation this Warrant accompanied by a properly completed Exercise Form and a check in an aggregate amount equal to the product obtained by multiplying (a) the Exercise Price by (b) the number of Warrant Shares being purchased. Any partial exercise of such Warrant shall be for a whole number of Warrant Shares only. At the option of the Holder, all or any portion of the amount that would otherwise be required to be paid by the Holder by check may be paid by the Holder's agreeing to reduce a like amount of principal of the term loans outstanding under the Amended and Restated Credit Agreement (such reduction to be effected net of any "success" fee payable to the Holder in connection with such exercise and by reducing installments of such term loans in the inverse order of the maturity thereof). SECTION 4.2. EXCHANGE FOR WARRANT SHARES. On any Business Day prior to the Expiration Date, a Holder may exchange this Warrant, in whole or in part, for Warrant Shares by delivering to the Corporation this Warrant accompanied by a properly completed Exchange Form. The number of shares of Common Stock to be received by a Holder upon such exchange shall be equal to (a) the number of Warrant Shares allocable to the portion of this Warrant being exchanged (the "Allocable Number"), as specified by such Holder in the Exchange Form less (b) the number of shares equal to the quotient obtained by dividing (i) the product obtained by multiplying (A) the Exercise Price by (B) the Allocable Number of Warrant Shares by (ii) the Market Price as of the close of business on the date of delivery of the Exchange Form. The Allocable Number need not be a whole number. SECTION 4.3. ISSUANCE OF COMMON STOCK. (a) Within ten (10) Business Days following the delivery date (the "Delivery Date") of (i) an Exercise Form or Exchange Form in accordance with Section 4.1 or 4.2, (ii) this Warrant and (iii) any required payments of the Exercise Price, the Corporation shall issue and deliver to the Holder a certificate or certificates, registered in the name or names set forth on such notice, representing the Warrant Shares being purchased or to be received upon such exchange. (b) If a Holder shall exercise or exchange this Warrant for less than all of the Warrant Shares which could be purchased or received thereunder, the Corporation shall issue to the Holder, within ten (10) Business Days of the Delivery Date, a new Warrant evidencing the right to purchase the remaining Warrant Shares. In the case of an exchange pursuant to Section 4.2, the number of remaining Warrant Shares shall be the original number of Warrant Shares subject to this Warrant so exchanged reduced by the Allocable Number of Warrant Shares. Each Warrant surrendered pursuant to Section 4.1 or 4.2 shall be canceled. (c) The Corporation shall not be required to issue fractional shares of Common Stock upon the exercise or exchange of this Warrant. If any fraction of a share of Common Stock would be issuable on the exercise or exchange of this Warrant, the Corporation may, in lieu of issuing such fractional share, pay to such Holder for any such fraction of a share an amount in cash equal to the product obtained by multiplying (i) such fraction by (ii) the Market Price in effect on the Delivery Date. (d) The Corporation shall pay all taxes (other than any applicable income or similar taxes payable by a Holder of this Warrant) attributable to the initial issuance of Warrant Shares upon the exercise or exchange of this Warrant, PROVIDED, HOWEVER, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance of any Warrants or any certificate for Warrant Shares in a name other than that of the Holder of this Warrant. -11- (e) If permitted by Applicable Law, the person in whose name any certificate for shares of Common Stock is issued upon exercise or exchange of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the Delivery Date, irrespective of the date of delivery of such certificate, except that if the Delivery Date is a date when the stock transfer books of the Corporation are closed, such person shall be deemed to have become the holder of record of such shares at the close of business on the next succeeding date on which the stock transfer books are open. (f) If any shares of Common Stock required to be reserved for purposes of the exercise or exchange of this Warrant require registration or approval under any Applicable Law, the Corporation will in good faith and as expeditiously as possible cause such shares to be registered or seek such approval, as applicable. The Corporation may suspend the exercise of any Warrant so affected for the period during which such registration or approval is required but not in effect. (g) Any Exercise Form or Exchange Form delivered under Section 4.1 or 4.2 may condition the exercise or exchange of this Warrant on the consummation of a sale contemplated by Section 5.3, 5.4, 5.5 or 5.6, or on the consummation of a sale of Warrant Shares pursuant to a public offering registered under the Securities Act, and such exercise or exchange shall not be deemed to have occurred except concurrently with the consummation of any such sale. SECTION 4.4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number and kind of Warrant Shares purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in accordance with this Section 4.4. SECTION 4.4.1. ADJUSTMENT UPON ISSUANCE OF COMMON STOCK. (a) If, at any time after the Closing Date, the Corporation shall issue or sell (or, in accordance with Section 4.4.1(b), shall be deemed to have issued or sold) any shares of Common Stock without consideration or for a consideration per share less than the Market Price determined as of the date of such issuance or sale, then, effective immediately upon such issuance or sale, the Exercise Price shall be reduced to an amount equal to the product obtained by multiplying (A) the Exercise Price in effect immediately prior to such issuance or sale, by (B) a fraction, the numerator of which shall be the sum of (x) the product obtained by multiplying (1) the number of shares of Common Stock outstanding (on a Fully- Diluted Basis) immediately prior to such issuance or sale by (2) the Market Price as of the date of such issuance or sale, and (y) the consideration, if any, received by the Corporation upon such issuance or sale, and the denominator of which shall be the product obtained by multiplying (C) the number of shares of Common Stock outstanding (on a Fully-Diluted Basis) immediately after such issuance or sale, by (D) such Market Price. Upon each such adjustment of the Exercise Price hereunder, the number of Warrant Shares which may be obtained upon exercise of this Warrant shall be increased to the number of shares determined by multiplying (A) the number of Warrant Shares which could be obtained upon exercise of this Warrant immediately prior to such adjustment by (B) a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. (b) For the purpose of determining the adjusted Exercise Price under Section 4.4.1(a), the following shall be applicable: (i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner issues or grants any rights or options to subscribe for or to purchase (A) Common Stock or (B) any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Market Price determined as of the date of issuance or grant of such Options, then the total maximum number of -12- shares of Common Stock issuable upon the exercise of such Options (or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options) shall be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For purposes of this paragraph, the price per share for which Common Stock is issuable upon excercise of Options or upon conversion or exchange of Convertible Securities issuable upon exercise of Options shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issuing or 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 to the Corporation upon issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the Exercise of such Options or upon actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any manner issues or sells any Convertible Securities having an exercise or conversion or exchange price per share of Common Stock which is less than the Market Price determined as of the date of such issuance or sale, then the maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation for such lower price per share. For purposes of this paragraph, the price per share for which Common Stock is issuable upon conversion or exchange of Convertible Securities is determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issuance 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 (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price had been or are required to be made pursuant to other provisions of this Section 4.4.1(b), no further adjustment of the Exercise Price shall be made by reason of such issuance or sale. (iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issuance, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time, then the Exercise Price in effect at the time of such change shall be readjusted to the Exercise 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 changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares shall be correspondingly readjusted. (iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE SECURITIES. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the Exercise Price then in effect and the number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise Price and the number of shares 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. -13- (v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, then the consideration received therefor shall be deemed to be the net amount received by the Corporation therefor. If any Common Stock, Options or Convertible Securities are issued or sold for consideration other than cash, then the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration determined by the Board of Directors of the Corporation. (vi) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation or any Subsidiary of the Corporation, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (vii) RECORD DATE. If the Corporation maintains a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. SECTION 4.4.2. SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. If, at any time after the Closing Date, (a) the number of shares of Common Stock outstanding is increased by a dividend or other distribution payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock or (b) the number of shares of Common Stock outstanding is decreased by a combination or reverse stock split of shares of Common Stock, then, in each case, effective as of the effective date of such event retroactive to the record date, if any, of such event, (i) the Exercise Price shall be adjusted to a price determined by multiplying (A) the Exercise Price in effect immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such event, and (ii) the number of Warrant Shares subject to purchase upon the exercise of this Warrant shall be adjusted effective at such time, to a number equal to the product of (A) the number of Warrant Shares subject to purchase upon the exercise of this Warrant immediately prior to such event by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding after giving effect to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such event. SECTION 4.4.3. CAPITAL REORGANIZATION OR CAPITAL RECLASSIFICATIONS. If, at any time after the Closing Date, there shall be any capital reorganization or any reclassification of the capital stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), then in each case the Corporation shall cause effective provision to be made so that this Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of this Warrant would have been entitled upon such reorganization or reclassification and any such provision shall include adjustments in respect of such stock, securities or other property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. SECTION 4.4.4. CONSOLIDATIONS AND MERGERS. If, at any time after the Closing Date, the Corporation shall consolidate with, merge with or into, or sell all or substantially all of its assets or property to, another corporation, then the Corporation shall cause effective provision to be made so that this Warrant shall, effective as of the effective date of such event retroactive to the record date, if any, of such event, be exercisable or -14- exchangeable for the kind and number of shares of stock, other securities, cash or other property to which a holder of the number of shares of Common Stock deliverable upon exercise or exchange of such Warrant would have been entitled upon such event. SECTION 4.4.5. NOTICE; CALCULATIONS; ETC. Whenever the Exercise Price and the number of Warrant Shares shall be adjusted as provided in this Section 4.4, the Corporation shall provide to the Holder of this Warrant a statement, signed by an Executive Officer, describing in detail the facts requiring such adjustment and setting forth a calculation of the Exercise Price and the number of Warrant Shares applicable to this Warrant after giving effect to such adjustment. All calculations under this Section 4.4 shall be made to the nearest one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the case may be. Adjustments pursuant to Sections 4.4.1, 4.4.2 and 4.4.3 shall apply to successive events or transactions of the type covered thereby. SECTION 4.4.6. CERTAIN ADJUSTMENTS. (a). Subject to the limitations set forth in Section 4.4, the Corporation may make such reductions in the Exercise Price or increase in the number of Warrant Shares to be received by any Holder upon the exercise or exchange of this Warrant, in addition to those adjustments required by this Section 4.4, as it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, or any issuance wholly for cash of any shares of Common Stock, or any issuance wholly for cash of shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, or any stock dividend, or any issuance of rights, options or warrants hereinafter made by the Corporation to the holders of its Common Stock shall not be taxable to such holders. (b). In the event that the Corporation in any manner issues or grants Options or Convertible Securities, or any other transaction, circumstances or events occur which give rise to anti-dilution adjustments under Other Anti-Dilution Instruments, but not the Warrants, then the Corporation will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the Holders against dilution as a result of such events. SECTION 4.4.7. EXCLUDED TRANSACTIONS; INCLUDED TRANSACTIONS. Notwithstanding any other provision of this Section 4.4, no adjustment shall be made pursuant to this Section 4.4 in respect of the issuance of Excluded Securities. Notwithstanding any other provision of this Section 4.4, Penalty Warrants (as defined in the Securities Purchase Agreement) shall not be deemed Excluded Securities and shall be deemed to have been issued by the Corporation without consideration. SECTION 4.4.8. ADJUSTMENT RULES. (a) Any adjustments pursuant to this Section 4.4 shall be made successively whenever an event referred to herein shall occur, except that, notwithstanding any other provision of this Section 4.4, no adjustment shall be made to the number of shares of Common Stock or to the Exercise Price if such adjustment represents less than 1% of the number of shares previously required to be so delivered, but any lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to 1% or more of the number of shares to be so delivered. (b) Notwithstanding any other provision of this Warrant, the actual amount payable by a Holder in connection with the exercise of this Warrant shall not be less than the par value per share of the Common Stock, unless and until the Exercise Price, as adjusted pursuant to this Section 4.4, has been reduced to an amount less than 1% of the par value per share of the Common Stock. Before taking any action which would cause an adjustment pursuant to this Section 4.4 which would reduce the Exercise Price below 1% of the par value per share, the Corporation shall be required to take any corporate action which may be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. -15- SECTION 4.4.9. REGULATED HOLDERS. If, in the written opinion of counsel to any Regulated Holder (which may be internal counsel), the receipt by such Regulated Holder of Warrant Shares (or any security included therein) upon any exercise or exchange pursuant to this Article IV would cause such Regulated Holder to violate any provision of Applicable Law with respect to its Ownership of voting securities of the Corporation, then the Corporation will use its best efforts (including without limitation using its best efforts to cause its Organizational Documents to be amended) to create an Equivalent Nonvoting Security with respect to Warrant Shares (or any such security included therein), and such Regulated Holder shall be entitled to receive upon such exercise or exchange, in lieu of such number (as it shall specify) of shares or other units of Warrant Shares (or any such security included therein) otherwise receivable by such Regulated Holder, the same number of shares or other units of such Equivalent Nonvoting Security. ARTICLE V CERTAIN OTHER RIGHTS SECTION 5.1. PAYMENTS IN RESPECT OF DIVIDENDS AND DISTRIBUTIONS. (a) If, at any time prior to the earlier of (i) the Expiration Date and (ii) the consummation of a Qualified Public Offering, the Corporation pays any dividend or makes any distribution (whether in cash, property, or securities of the Corporation) on its capital stock which does not result in an adjustment under Section 4.4, then the Corporation shall simultaneously pay to the Holder of each Warrant the dividend or distribution which would have been paid to such Holder on the Warrant Shares receivable upon the exercise in full of such Warrant had such Warrant been fully exercised immediately prior to the record date for such dividend or distribution or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividend or distribution are to be determined. (b) If, in the written opinion of counsel to any Regulated Holder (which counsel may be internal counsel), the distribution to such Regulated Holder of any security of the Corporation pursuant to Section 5.1(a) would cause such Regulated Holder to violate any provision of Applicable Law with respect to its Ownership of voting securities of the Corporation, then the Corporation will use its best efforts (including, without limitation, using its best efforts to cause its Organizational Documents to be amended) to create an Equivalent Nonvoting Security with respect to the security to be distributed and such Regulated Holder shall be entitled to receive, in lieu of such number (as it shall specify) of shares or other units of the security to be distributed pursuant to Section 5.1(a) otherwise receivable by such Regulated Holder, the same number of shares or other units of such Equivalent Nonvoting Security. SECTION 5.2. PUT RIGHTS. (a) Not less than sixty (60) days prior to any Put Event the Corporation shall give to each Holder written notice of such Put Event (the "Put Event Notice"), which shall set forth in reasonable detail a description of the transactions expected to result in such Put Event and the anticipated effective date thereof. (b) Subject to Section 5.2(a) hereof, if at any time (i) within 50 days following delivery of a Put Event Notice (or at any time following a Put Event if a Put Event Notice was required to be delivered to the Holders pursuant to Section 5.3(a) but was not so delivered prior to the occurrence of such Put Event or (ii) following the fifth anniversary of the Closing Date, the Holder shall notify the Corporation in writing (the "Put Notice") of its desire to cause the Corporation to repurchase all (but not less than all) of the Warrant Shares issued or represented by this Warrant, such Holder shall have the right to require the Corporation to repurchase all (but not less than all) of the Warrant Shares (or Warrants) represented by this Warrant (the "Put") at a price per share equal to the Put Price. Upon delivery of the Put Notice, the Corporation shall give notice to all other Holders, and such Holders shall have the right to participate in such Put by so notifying the Corporation (a "Participation Notice") within twenty (20) days (the "Participation Period") after receipt of such notice. -16- (c) Upon the expiration of any Participation Period (or upon delivery of a Put Notice, if there is only one Holder at the time of such delivery), the Put Price shall be determined. Within ten (10) Business Days following such determination (or, if applicable, upon consummation of the Put Event if later), the Corporation shall purchase, and such Holders shall sell, the number of Warrant Shares (or Warrants) specified in the Put Notice and all Participation Notices at a mutually agreeable time and place (the "Put Closing"). (d) If the Corporation shall not have funds legally available in the amount necessary to purchase all Warrant Shares and Warrants with respect to which the Put has been exercised, then the Warrant Shares and Warrants with respect to which each Holder has exercised the Put shall be repurchased on a PRO RATA basis, in accordance with the number of Warrant Shares held by each Holder. Any Put not satisfied in full pursuant to the terms of this Section 5.2 shall remain an obligation of the Corporation until such time as such satisfaction shall have occurred and the Company shall pay interest on the amount of such obligation at the Base Rate (as defined in the Amended and Restated Credit Agreement) plus 5% from the Put Closing to the date on which such amount is paid in full. In the event that, based on the values of the Corporation's assets and liabilities reflected in the books and records of the Corporation, it would be unlawful, under applicable state corporation laws, for it to purchase put shares, or pay the Put Price therefor, the Corporation hereby agrees, if and to the extent permitted by the Amended and Restated Credit Agreement and any other borrowing agreements of the Corporation then in place and applicable law, to revalue its assets and liabilities based upon their current fair market value, and to take such other action as may be necessary, to cause such purchase to no longer be unlawful. (e) At the Put Closing, each Holder that has provided the Corporation with a Participation Notice shall deliver to the corporation such Holder's Warrant Shares or Warrants representing Warrant Shares and the Corporation shall deliver to such Holder an amount equal to the product, obtained by multiplying (i) the number of such Warrant Shares (issued or represented by outstanding Warrants) by (ii) the Put Price (less, in the case of the repurchase of Warrants, the per share exercise price), by cashier's or certified check of a creditworthy bank payable to such Holder or by wire transfer of immediately available funds to an account designated by such Holder. (f) After the Closing Date, the Corporation shall not grant any other rights similar to the Put that are exercisable prior to the time at which the Put is exercised or that are not expressly subordinated to the Put, in form and substance reasonably acceptable to the Holders, to the rights of Holders pursuant to the Put; PROVIDED, HOWEVER, that the Corporation shall be entitled to grant put rights on a pari passu basis with the Put to a creditor (or creditors) in connection with a refinancing by such creditor (or creditors) of all obligations of the Corporation under the Amended and Restated Credit Agreement. The Corporation shall not (and shall not permit any Subsidiary of the Corporation to) enter into any contract or other consensual arrangement that by its terms restricts the Corporation's ability to honor the Put. (g) Notwithstanding anything contained herein to the contrary, the rights set forth in this Section 5.2 shall cease to be exercisable upon the consummation of a Qualified Public Offering. However, irrespective of the foregoing, the rights set forth in this Section 5.2 shall be reinstated if, after the consummation of a Qualified Public Offering, (i) Rule 144 under the Securities Act becomes unavailable to the Holders due to actions or omissions by the Corporation or (ii) the Corporation ceases to be subject to Sections 12(b) or 12(g) under the Exchange Act. (h) After the Closing Date, the Corporation shall not enter into any agreement, understanding or transaction other than the Amended and Restated Credit Agreement pursuant to which the Company shall be required, or makes a covenant, representation or warranty, to prevent or to contractually impair the exercise of the put rights provided for in this Section 5.2 or the obligation of the Corporation to pay the Put Price. If the Company is unable, pursuant to the Amended and Restated Credit Agreement or in accordance with applicable corporation statutes, to purchase all of the Warrants and/or Warrant Shares which are the subject of a Put Notice, -17- the Corporation shall if so requested in writing by the Holders exercising put rights, (i) purchase in accordance with the Put Notice the maximum number of such Warrants and/or Warrant Shares put which the Company may purchase and (ii) in one or more installments, at the earliest time that the Company may lawfully or contractually do so, purchase all remaining Warrants and/or Warrant Shares put and pay interest at the Base Rate (as defined in the Amended and Restated Credit Agreement) plus 5% on the amount of the aggregate Put Price attributable to such remaining Warrants and/or Warrant Shares from the Put Closing to the date on which such amount is paid in full. In the event that, based on the values of the Corporation's assets and liabilities reflected in the books and records of the Corporation, it would be unlawful, under applicable state corporation laws, for it to purchase put shares, or pay the Put Price therefor, the Corporation hereby agrees, if and to the extent permitted by the Amended and Restated Credit Agreement and any other borrowing agreements of the Corporation then in place and applicable law, to revalue its assets and liabilities based upon their current fair market value, and to take such other action as may be necessary, to cause such purchase to no longer be unlawful. (i) Notwithstanding anything contained herein to the contrary, the rights of the Holders in relation to the holders of warrants (other than Penalty Warrants (as defined in the Securities Purchase Agreement)) issued pursuant to the Senior Subordinate Documents and the Securities Purchase Agreement shall be as set forth in clauses (b) and (c) of the Senior Subordinate Agreement (including, without limitation, that any obligation of the Corporation shall be evidenced by a promissory note due within 366 days and bearing interest at a rate of 14% per annum); PROVIDED, HOWEVER, that clauses (b) and (c) of Section 7.03 of the Senior Subordinate Agreement shall not be amended or modified without the prior consent of the Holder. SECTION 5.3. CALL RIGHTS. (a) Subject to Section 5.3(e), the Corporation shall have the right, at any time after the fifth anniversary of the Closing Date, to purchase all (but not less than all) of the Warrant Shares (issued or represented by outstanding Warrants) held by all Holders (the "Call") at a price per Warrant Share equal to the Call Price (less, in the case of a repurchase of Warrants, the per share exercise price). The Corporation may exercise the Call by delivering at least 10 days' prior written notice (the "Call Notice") to the Holders. Upon delivery of the Call Notice, the Call Price shall be determined. (b) The closing (the "Call Closing") of the purchase of Warrant Shares and Warrants pursuant to the Call shall take place, within 10 days following determination of the Call Price, at a mutually agreeable place. At the Call Closing, the Corporation shall purchase from the Holders, and the Holders shall sell to the Corporation, all of the Warrants and Warrant Shares then held by the Holders at a price per share equal to the Call Price. (c) At the Call Closing, each Holder shall deliver to the Corporation its Warrant Shares (or Warrants representing Warrant Shares), against payment of an amount equal to the product obtained by multiplying (i) the number of such Warrant Shares (or Warrant Shares represented by Warrants) being repurchased by (ii) the Call Price (less, in the case of the repurchase of Warrants, the aggregate exercise price for the Warrant Shares represented thereby), by cashier's or certified check of a creditworthy bank payable to such Holder or, at the option of such Holder, by wire transfer of immediately available funds to an account designated by such Holder. (d) If within twelve (12) months following the exercise of the Call pursuant to clause (ii) of Section 5.3(a)(i) all or substantially all of the Corporation's consolidated assets are sold for a consideration that implies a value of the Corporation's equity per share of Common Stock (on a Fully-Diluted Basis) which exceeds the Call Price, (ii) a merger or consolidation of the Corporation at a consideration per share of Common Stock (on a Fully-Diluted Basis) in excess of the Call Price, or (iii) ten percent (10%) or more of the Common Stock outstanding as of the date of the Call Notice is sold in a single transaction or series of related transactions, or a public offering registered under the Securities Act is consummated, at a price per share in excess of the Call Price, or (iv) a transaction occurs under which a Holder would have had co-sale rights under Section 5 of the Shareholders Agreement, then, in any such case, upon consummation of any such transaction, each Holder shall -18- be entitled to receive from the Corporation an amount in cash equal to such excess multiplied by the number of Warrant Shares sold by such Holder under the Call, payable by certified or cashier's check (of a bank reasonably acceptable to such Holder) or wire transfer of immediately available funds to an account designated by such Holder. In the event any issuance or sale during such 12- month period is for non-cash consideration, the fair value of such consideration shall be determined in accordance with the Valuation Procedure. (e) Notwithstanding anything contained herein to the contrary, the rights set forth in this Section 5.3 shall be subject to the terms of the Amended and Restated Credit Agreement, and shall cease to be exercisable upon the consummation of a Qualified Public Offering. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. By the acceptance hereof, the Holder of this Warrant represents that it is acquiring the Warrant for its own account for investment purposes only and not with a view to any distribution or public offering in violation of the Securities Act. SECTION 6.2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation hereby represents and warrants to the Holder of this Note as follows: (a) ORGANIZATION. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, has all requisite power and authority and has all material governmental licenses, approvals, consents and authorizations necessary to own its property and assets and to carry on its business as currently conducted and is qualified to do business in each jurisdiction in which the nature of the business conducted or the property owned or leased by it requires such qualification except where the failure to be so qualified or licensed would not have a material adverse effect on the business, condition, operations or properties of the Corporation. (b) CORPORATE POWER AND AUTHORITY; NO REQUIRED CONSENTS OR APPROVALS. (i) The Corporation has the power to execute, deliver and perform its obligations under this Warrant and the Registration Rights Agreement. (ii) The execution, delivery and performance by the Corporation of this Warrant and the Registration Rights Agreement, the issuance of Warrants and the issuance of Warrant Shares upon exercise of each Warrant, have been duly authorized by all required corporate and stockholder action of the Corporation and will not (i) violate any provision of Applicable Law, any Organizational Document, or any indenture or other material agreement or instrument to which the Corporation is a party or by which the Corporation or any of its properties are or may be bound, (ii) conflict with result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture or other material agreement or instrument to which the Corporation is a party, or by which the Corporation or any of its properties are or may be bound, (iii) results in the creation or imposition of any Lien upon any property of the Corporation or (iv) require registration or filing with, or consent, approval or any other action by any Governmental Authority (other than any registration, filing, consent or approval or other action that has been provided, granted or taken, as the case may be). (c) ENFORCEABILITY. This Warrant and the Registration Rights Agreement have been duly executed and delivered by the Corporation and each constitute a legal, valid, binding and enforceable obligation of the Corporation except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar event affecting the enforcement of creditors rights generally and except as enforceability may be subject to general principles of equity, whether such -19- principles are applied in a court of equity. The Warrant Shares, when issued upon the exercise or exchange of a Warrant in accordance with the terms hereof, will be duly authorized, validly issued, fully paid and nonassessable shares of the Common Stock with no personal liability attaching to the ownership thereof. (d) CREDIT AGREEMENT. Each of the representations and warranties of the Corporation set forth in or under the Amended and Restated Credit Agreement is true and correct in all material respects, and are hereby incorporated herein, with the same effect as if stated in their entirety herein. ARTICLE VII COVENANTS OF THE CORPORATION SECTION 7.1. NOTICES OF CERTAIN ACTIONS. (a) In the event that the Corporation: (i) shall authorize issuance to all holders of Common Stock of rights or warrants to subscribe for or purchase capital stock of the Corporation or of any other subscription rights or warrants; or (ii) shall authorize a dividend or other distribution to all holders of Common Stock of evidences of its indebtedness, cash or other property or assets; or (iii) proposes to become a party to any consolidation or merger for which approval of any stockholders of the Corporation will be required, or to a conveyance or transfer of the properties and assets of the Corporation substantially as an entirety, or of any capital reorganization or reclassification or change of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or (iv) commences a voluntary or involuntary dissolution, liquidation or winding up; (v) commences a Qualified Public Offering; (vi) defaults under this Warrant; or (vii) proposes to take any other action which would require an adjustment pursuant to Section 4.4; then the Corporation shall provide a written notice to the Holder stating (i) the date as of which the holders of record of Common Stock to be entitled to receive any such rights, warrants or distribution are to be determined, (ii) the material terms of any such consolidation or merger and the expected effective date thereof, or (iii) the material terms of any such conveyance, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of Common Stock will be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, conveyance, transfer, dissolution, liquidation or winding up. Such notice shall be given not later than twenty (20) Business Days prior to the effective date (or the applicable record date, if earlier) of such event. The failure to give the notice required by this Section 7.1 or any defect therein shall not affect the legality or validity of any distribution, right, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. SECTION 7.2 FINANCIAL STATEMENTS AND REPORTS. The Corporation shall furnish to the Holder hereof: -20- (a) as soon as available but in any event within ninety (90) days after the end of each Fiscal Year (commencing with the Fiscal Year ending December 31, 1996), consolidated balance sheets, income statements and cash flow statements of the Corporation and its Subsidiaries, showing its financial condition as of the close of such Fiscal Year and the results of its operations during such year, all the foregoing financial statements to be audited by independent accountants of nationally recognized standing and prepared in accordance with GAAP (subject to year end adjustments); (b) as soon as available but in any event within thirty (30) days after the end of each Fiscal Quarter, the unaudited consolidated balance sheets, income statements and cash flow statements, showing the financial condition and results of operations of the Corporation, as at the end of each such Fiscal Quarter and for the then elapsed portion of the Fiscal Year, in each case prepared in accordance with GAAP; (c) as soon as practicable and in any event not less than 30 days prior to the end of each fiscal year of the Corporation, an annual operating budget for the Corporation for the succeeding fiscal year, containing budget of profit and loss and cash flow (the "Budget"). Promptly upon preparation thereof, the Corporation will furnish to the Holder any revisions of such previously furnished Budgets; and (d) promptly upon their becoming available, copies of any statements, reports and other communications, if any, which the Corporation shall have provided to its stockholders of filed with the Securities and Exchange Commission or any national securities exchange; SECTION 7.3. INFORMATION RIGHTS. The Holder of this Warrant shall have all of the rights of a holder of Common Stock under Applicable Law, whether or not such holder has exercised or exchanged any Warrants, to receive lists of stockholders or other information respecting the Corporation, to inspect the books and records of the Corporation and to visit the properties of the Corporation. SECTION 7.4. REGULATED HOLDERS. (a) Notwithstanding any other provision of this Warrant to the contrary, except as provided in this Section 7.4, without the prior written consent of any Regulated Holder, the Corporation shall not redeem, purchase or otherwise acquire, directly or indirectly, convert, take any action (including any amendment to an Organizational Document) with respect to the voting rights of, or undertake any other action or transaction (including without limitation any merger, consolidation or recapitalization) affecting, any shares of its capital stock or other voting securities if the result of this foregoing would be to cause the Ownership of the capital stock of any Person by such Regulated Holder, or the Ownership of voting securities of any Person (or any class thereof) by such Regulated Holder, to exceed the quantity of such capital stock or voting securities (or any class thereof) that such Regulated Holder is permitted under Applicable Law to Own. Any section or transaction referred to in the preceding sentence shall be referred to herein as a "Section 7.4 Transaction". The Corporation shall be permitted to undertake any Section 7.4 Transaction which would otherwise result in the Ownership by any Regulated Holder of voting securities (or any class thereof) in excess of the quantity permitted by Applicable Law if, in a manner reasonably satisfactory to such Regulated Holder, the Corporation shall provide or cause to be provided for such Regulated Holder (i) to receive in connection with any such action or transaction a number of shares or other units of Equivalent Nonvoting Securities equal to such excess in lieu of the same number of shares or other units of the voting securities it would otherwise have received or (ii) if it would not otherwise have received voting securities in connection with such action or transaction, to exchange a number of shares or other units of voting securities then held by such Regulated Holder equal to such excess for the same number of shares or other units of Equivalent Nonvoting Securities. If the Corporation proposes to undertake any action or transaction which could constitute a Section 7.4 Transaction, it shall provide the Holders at least 15 days prior written notice thereof. If, in the written opinion of counsel to any Regulated Holder (which may be internal counsel) delivered within 10 days following receipt of such notice, such action or transaction constitutes a Section 7.4 Transaction with respect to such Regulated Holder, then the Corporation shall delay undertaking such Section 7.4 Transaction for the purpose of using its best efforts to agree on a manner in which to restructure such action or transaction in a manner reasonably satisfactory to the -21- Corporation and such Regulated Holder so that it no longer would constitute a Section 7.4 Transaction. If the Corporation and such Regulated Holder are unable to agree, within 20 days of the delivery of such written opinion, upon a manner in which to so restructure such Section 7.4 Transaction and such Section 7.4 Transaction is a bona fide action or transaction proposed by the Corporation in good faith, then the Corporation shall be permitted to undertake such Section 7.4 Transaction if prior to or concurrently with doing so it purchases from such Regulated Holder, at a purchase price equal to the Put Market Value Per Share, a number (specified by such Regulated Holder) of Warrants (based on the number of Warrant Shares represented thereby) or Warrant Shares sufficient, in the written opinion of counsel to such Regulated Holder (which may be internal counsel), to prevent such Section 7.4 Transaction from causing the Ownership of the capital stock of any Person by such Regulated Holder to exceed the quantity of such capital stock that such Regulated Holder is permitted under Applicable Law to Own. (b) If it becomes unlawful for any Regulated Holder to continue to hold some or all of the Warrants or Warrant Shares held by it, or restrictions are imposed on any Regulated Holder by Applicable Law which, in the reasonable judgment of such Regulated Holder, make it unduly burdensome to continue to hold such Warrants or Warrant Shares, the Corporation shall (i) cooperate with such Regulated Holder in any efforts by such Regulated Holder to dispose of some or all of such Warrants or Warrant Shares in a prompt and orderly manner, including without limitation providing (and authorizing such Regulated Holder to provide) financial and other information concerning the Corporation to any prospective purchaser of such Warrants or Warrant Shares and (ii) at the request of such Regulated Holder, take all steps (including without limitation using it best efforts to cause its Organizational Documents to be amended) necessary to create an Equivalent Nonvoting Security with respect to the Warrant Shares then held by such Regulated Holder and permit such Regulated Holder to exchange Warrant Shares for the same number of shares or other units of such Equivalent Nonvoting Security; PROVIDED, HOWEVER, that nothing in this Section 7.4(b) shall require the Corporation to register or qualify such Warrants or Warrant Shares under any federal or state securities laws. SECTION 7.5. MERGER OR CONSOLIDATION OF THE CORPORATION. The Corporation will not merge or consolidate with or into, or sell, transfer, or lease all or substantially all of its property to, any other corporation or partnership unless the successor or purchasing entity, as the case may be (if not the Corporation), is organized under the laws of the United States of America or any state or political subdivision thereof and shall expressly agree to provide to the Holder the securities, cash or property required by Section 4.4.4 hereof upon the exercise or exchange of Warrants and expressly assumes, by supplemental agreement reasonably satisfactory in form and substance to each Holder, the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Corporation; PROVIDED, HOWEVER, that the initial obligation of such successor with respect to the exercise or exchange of Warrants shall be only as set forth in Section 4.4.4. SECTION 7.6 RESERVATION OF SHARES. The Corporation will at all times have authorized, and reserve and keep available, free from preemptive rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise or exchange of each Warrant, the number of shares of Common Stock deliverable upon exercise or exchange of all outstanding Warrants. SECTION 7.7 CURRENT PUBLIC INFORMATION. At all times after the Corporation has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act, the Corporation will file all reports required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and will take such further action as any holder or holders of restricted securities may reasonably request, all to the extent required to enable such holders to sell Restricted Securities pursuant to Rule 144 or Rule 144A adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and -22- Exchange Commission. Upon request, the Company will deliver to such holders a written statement as to whether it has complied with such requirements. SECTION 7.8 PUBLIC DISCLOSURES. The Corporation will not disclose any Holder's name or identity as an investor in the Company in any press release or other public announcement or in any written consent of such Holder, unless such disclosure is required by applicable law or governmental regulations or by order of a court of competent jurisdictions in which case prior to making such disclosure the Company will given written notice on such Holder describing in reasonable detail the proposed content of such disclosure and will permit the Holder to review and comment upon the form and substance of such disclosure. ARTICLE VIII. GUARANTEE SECTION 8.1 THE GUARANTEE. Subject to the limitations set forth in Section 8.8 hereof, the Subsidiaries of the Corporation identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (individually, a "Subsidiary Guarantor" and, collectively, "Subsidiary Guarantors") hereby jointly and severally guarantee to the Holder and its respective successors and assigns the prompt payment in full when due of all amounts from time to time owing to the Holder by the Corporation under this Warrant, in each case strictly in accordance with the terms hereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Subsidiary Guarantors hereby further jointly and severally agree that if the Corporation shall fail to pay in full when due any of the Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due in accordance with the terms of such extension or renewal. SECTION 8.2 OBLIGATIONS UNCONDITIONAL. Subject to the limitations set forth in Section 8.8 hereof, the obligations of the Subsidiary Guarantors under Section 8.1 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Corporation under this Warrant or any other agreement or instrument referred to herein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 8.2 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Warrant or any other agreement or instrument referred to herein or therein shall be done or omitted; or (iii) any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Warrant or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part otherwise dealt with. -23- The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all motions whatsoever, and any requirement that the Holder exhaust any right, power or remedy or proceed against the Corporation under this Warrant or any other agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 8.3 REINSTATEMENT. The obligations of the Subsidiary Guarantors under this Section 8 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Corporation in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Holder on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by such in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION 8.4 SUBROGATION. Each Subsidiary Guarantor hereby waives all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under the Federal Bankruptcy Code of 1978, as amended) or otherwise by reason of any payment by it pursuant to the provisions of this Section 8 and each Subsidiary Guarantor further agrees with the Corporation for the benefit of each of its creditors (including, without limitation, the Holder) that any such payment by it shall constitute a contribution of capital by such Subsidiary Guarantor to the Corporation (or an investment in the equity capital of the Corporation by such Subsidiary Guarantor). SECTION 8.5 CONTINUING GUARANTEE. The guarantee in this Section 8 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 8.6 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the Properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under this Section 8.6 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Section 8 and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section 8.6, (i) "Excess Funding Guarantor" shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "Excess Payment" shall mean, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share" shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all Properties of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all Properties of the Corporation and all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Corporation and the Subsidiary Guarantors hereunder) of the Corporation. -24- and all of the Subsidiary Guarantors, all as of the Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder subsequent to the Closing Date, then for the purposes of this Section 8.6 such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary Guarantor as of the Closing Date and the aggregate present fair saleable value of the Properties, and the amount of the debts and liabilities, of such Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such value and amount on the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. SECTION 8.7 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor under Section 8.1 hereof would otherwise, taking into account the provisions of Section 8.7 hereof, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 8.1, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, the Holder or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. SECTION 8.8 LIMITATION ON KERNER'S LIABILITY. It is understood and agreed that the sole recourse of the Holder in respect of the obligations of Tri-Star Technologies under this Section 8 shall be to the assets of Tri-Star Technologies and that nothing contained herein shall create any obligation of or right to look to Alexander Kerner or his assets individually for the satisfaction of such obligations. SECTION 8.9 LIMITATION ON GUTERMANN'S LIABILITY. It is understood and agreed that the sole recourse of the Holder in respect of the obligations of Unidec under this Section 8 shall be to the assets of Unidec and that nothing contained herein shall create any obligation of or right to look to Silvia Gutermann or her assets individually for the satisfaction of such obligations. ARTICLE IX. MISCELLANEOUS SECTION 9.1. NOTICES. All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Warrant shall be in writing (i) delivered personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by first class, registered or certified mail, return receipt requested or (iv) sent by facsimile, in each case to such party at its address as follows (or such other address as shall be notified in writing): (a) if to the Corporation, to: DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: R. Jack DeCrane Telephone: 330-668-2518 Telecopier: 330-668-3061 -25- (b) if to ING, to: Internationale Nederlanden (U.S.) Capital Corporation 135 East 57th Street New York, New York 10021 Attention: Corporate Finance Department Telephone: 212/409-1521 Telecopier: 212/593-3362 Any notice, demand or request so delivered shall constitute valid notice under this Warrant and shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery, (ii) on the next Business Day after the date when sent in the case of delivery by nationally-recognized overnight courier, (iii) on the fifth Business Day after the date of deposit in the U.S. mail in the case of mailing or (iv) upon receipt in the case of a facsimile transmission. SECTION 9.2. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. No Warrant shall entitle the holder thereof to any voting rights or, except as otherwise provided herein, other rights of a stockholder of the Corporation, as such. No provision hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of such Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Corporation. SECTION 9.3. AMENDMENTS AND WAIVERS. Any provision of this Warrant may be amended or waived, but only pursuant to a written agreement signed by the Corporation, the Subsidiary Guarantors and the Holder. SECTION 9.4. SEVERABILITY. Any provision of this Warrant which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Warrant affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.5. SPECIFIC PERFORMANCE. Each Holder shall have the right to specific performance by the Corporation of the provisions of this Warrant, in addition to any other remedies it may have at law or in equity. The Corporation hereby irrevocably waives, to the extent that it may do so under applicable law, any defense based on the adequacy of a remedy at law which may be asserted as a bar to the remedy of specific performance in any action brought against the Corporation for specific performance of this Warrant by the Holders of the Warrants or Warrant Shares. SECTION 9.6. BINDING EFFECT. This Warrant shall be binding upon and inure to the benefit of the Corporation, each Holder and their respective successors and assigns. SECTION 9.7. ENTIRE AGREEMENT; GOVERNING LAW. THIS WARRANT (INCLUDING, WITHOUT LIMITATION, THE OBLIGATIONS OF UNIDEC UNDER SECTION 8 HEREOF) SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Warrant constitutes the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. In the event of any conflict between the terms of this Warrant and the terms of the Registration Rights Agreement or Shareholders Agreement (except with respect to limitations on the transfer of Warrants and Warrant Shares set forth therein), the terms of this Warrant shall be deemed to govern. -26- SECTION 9.8. BENEFITS OF THIS WARNING. Nothing in this Warrant shall be construed to give to any person other than the Corporation and each Holder of a Warrant or a Warrant Share any legal or equitable right, remedy or claim hereunder. SECTION 9.9. HEADINGS. The various headings of this Warrant are inserted for convenience only and shall not affect the meaning or interpretation of this Warrant or any provisions hereof or thereof. SECTION 9.10. INDEMNIFICATION. The Corporation shall indemnify, defend and hold the Holder harmless against all liability, loss or damagte, together with all reasonable costs and expenses related thereto (including legal and accounting fees and expenses), arising from, relating to, or connected with the untruth, inaccuracy or breach of any representations, warranties or covenants contained herein. SECTION 9.11. EXPENSES. The Corporation will promptly (and in any event within thirty (30) days of having any material or invoice therefor) pay all reasonable fans, expenses and costs relating hereto, including, but not limited to, (i) all transfer, stamp, documentary or other similar notes, assignments or charges levied by any governmental or revenue authority in respect hereof or any other document referred to herein, (ii) fees and expenses (including, without limitation, reasonable attorneys' fees) incurred in respect of the enforcement by Holders of the rights granted to Holders under this Warrant, and (iii) the expenses relating to the consideration, organization, preparation or execution of any amendments, waivers or consents requested by the Corporation pursuant to the provisions hereof, whether or not any such amendments, waivers or consents are executed. SECTION 9.12. ATTORNEYS' FEES. In any action or proceeding brought by a party to enforce any provision of this Warrant, the prevailing party shall be entitled to recover the reasonable costs and expenses incurred by it in connection with that action or proceeding (including, but not limited to, attorneys' fees). SECTION 9.13. FILINGS. The Corporation shall, at its own expense, promptly execute and deliver, or cause to be executed and delivered, to the Holder all applications, certificates, instruments and all other documents and papers that such holder of Warrants may reasonably request in connection with the obtaining of any consent, approval, qualification, or authorization of any federal, provincial, state or local government (or any agency or commission thereof) necessary or appropriate in connection with, or for the effective exercise of, any Warrants then held by such holder. SECTION 9.14. OTHER TRANSACTIONS. Nothing contained herein shall preclude the Holder from engaging in any transaction. In addition to those contemplated by this Warrant with the Corporation or any of its Affiliates in which the Corporation or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 9.15. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS WARRANT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS, THE CORPORATION OR THE SUBSIDIARY GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; THE CORPORATION AND THE SUBSIDIARY GUARANTORS EACH HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE CORPORATION AND THE SUBSIDIARY GUARANTORS EACH FURTHER IRREVOCABLY -27- CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE CORPORATION AND THE SUBSIDIARY GUARANTORS EACH HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE CORPORATION OR ANY SUBSIDIARY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE CORPORATION AND THE SUBSIDIARY GUARANTORS EACH HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS WARRANT. SECTION 9.16. WAIVER OF JURY TRIAL. THE HOLDERS, THE CORPORATION AND THE SUBSIDIARY GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS WARRANT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE HOLDERS, THE CORPORATION OR THE SUBSIDIARY GUARANTORS. THE CORPORATION AND EACH OF THE SUBSIDIARY GUARANTORS ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER ACQUIRING THIS WARRANT. IN WITNESS WHEREOF, DeCrane Aircraft Holdings, Inc. and each Subsidiary Guarantor has caused this Warrant to be duly executed and delivered by its authorized officers, all as of the date and year first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ R Jack DeCrane ------------------------------ Name: Title: -28- SUBSIDIARY GUARANTORS --------------------- ADS ACQUISITION, INC. By /s/ R Jack De Crane ------------------------------ Title: TRI-STAR HOLDINGS, INC. By /s/ R Jack DeCrane ------------------------------- Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By /s/ R Jack DeCrane ------------------------------- Title: TRI-STAR TECHNOLOGIES, INC. By /s/ R Jack DeCrane ------------------------------- Title: TRI-STAR TECHNOLOGIES By Tri-Star Technologies, Inc., as general partner By /s/ R Jack DeCrane -------------------------- Title: TRI-STAR ELECTRONICS EUROPE S.A., MEZZOVICO By /s/ [illegible] ------------------------------- Title: CORY HOLDINGS, INC. By R Jack DeCrane ------------------------------- Title: -29- CORY COMPONENTS, INC. By /s/ R Jack DeCrane ------------------------------- Title: HOLLINGSEAD INTERNATIONAL, INC. By /s/ R Jack DeCrane ------------------------------- Title: HOLLINGSEAD INTERNATIONAL LIMITED By /s/ R Jack DeCrane ------------------------------- Title: -30- DECRANE AIRCRAFT HOLDINGS, INC. Common Stock Purchase Warrant TABLE OF CONTENTS
Page ------ ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE II ISSUANCE OF WARRANT; CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.1. Issuance of Warrant. . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE III REGISTRATION; EXCHANGE; TRANSFER; TAXES. . . . . . . . . . . . . . . . . . . 9 SECTION 3.1 Form of Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.2 Exchange of Warrant for Warrants . . . . . . . . . . . . . . . . . . . 10 SECTION 3.3 Transfer of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES. . . . . . . . . . . . . . . 11 SECTION 4.1 Exercise of Warrants . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 4.2 Exchange for Warrant Shares. . . . . . . . . . . . . . . . . . . . . 11 SECTION 4.3 Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 4.4 Adjustment of Exercise Price and Number of Warrant Shares. . . . . . 12 SECTION 4.4.1. Adjustment upon Issuance of Common Stock . . . . . . . . . . . . . . 12 SECTION 4.4.2. Subdivisions or Combinations of Common Stock . . . . . . . . . . . . 14 SECTION 4.4.3. Capital Reorganization or Capital Reclassifications. . . . . . . . . 14 SECTION 4.4.4. Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.4.5. Notice; Calculations; Etc. . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.4.6. Certain Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.4.7. Excluded Transactions; Included Transactions . . . . . . . . . . . . 15 SECTION 4.4.8. Adjustment Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.4.9. Regulated Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE V CERTAIN OTHER RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.1. Payments in Respect of Dividends and Distributions . . . . . . . . . . 16 SECTION 5.2. Put Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.3. Call Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 6.1. Representations and Warranties of the Holder . . . . . . . . . . . . . 19 SECTION 6.2. Representations and Warranties of the Corporation. . . . . . . . . . . 19 ARTICLE VII COVENANTS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 7.1. Notices of Certain Actions . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 7.2. Financial Statements and Reports . . . . . . . . . . . . . . . . . . . 20 SECTION 7.3. Information Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 7.4. Regulated Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 7.5. Merger or Consolidation of the Corporation . . . . . . . . . . . . . . 22 SECTION 7.6. Reservation of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7.7. Current Public Information . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7.8. Public Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Page ------ ARTICLE VIII. GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.1 The Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.2 Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.3 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.4 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.5 Continuing Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.6 Rights of Contribution. . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.7 General Limitation on Guarantee Obligations . . . . . . . . . . . . . . 25 SECTION 8.8 Limitation on Kerner's Liability. . . . . . . . . . . . . . . . . . . . 25 SECTION 8.9 Limitation on Gutermann's Liability . . . . . . . . . . . . . . . . . . 25 ARTICLE IX. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 9.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 9.2. No Voting Rights; Limitations of Liability . . . . . . . . . . . . . . 26 SECTION 9.3. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 9.4. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 9.5. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 9.6. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 9.7. Entire Agreement; Governing Law. . . . . . . . . . . . . . . . . . . . 26 SECTION 9.8. Benefit of this Warrant. . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.9. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.10. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.11. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.12. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.13. Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.14. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 9.15. Forum Selection and Consent to Jurisdiction. . . . . . . . . . . . . . 27 SECTION 9.16. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . 28
-ii- EX-10.27 27 EXHIBIT 10.27 EXECUTION COPY -------------- WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. E-1 Number of Shares of Common Stock: 195,023 TABLE OF CONTENTS Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. WARRANT VALUE . . . . . . . . . . . . . . . . . . . . . . . 5 2.2. MANNER OF EXERCISE .. . . . . . . . . . . . . . . . . . . . 6 2.3. PAYMENT OF TAXES .. . . . . . . . . . . . . . . . . . . . . 7 2.4. FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . 7 2.5. CONTINUED VALIDITY .. . . . . . . . . . . . . . . . . . . . 7 3. TRANSFER, DIVISION AND COMBINATION .. . . . . . . . . . . . . . . 7 3.1. TRANSFER .. . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2. DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . 8 3.3. EXPENSES .. . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4. MAINTENANCE OF BOOKS .. . . . . . . . . . . . . . . . . . . 8 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS .. . . . . . 8 4.2. CERTAIN OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . 9 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK . . . . . . . 10 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS . . . . . . . 11 4.5. ISSUANCE OF CONVERTIBLE SECURITIES .. . . . . . . . . . . . 12 4.6. SUPERSEDING ADJUSTMENT. . . . . . . . . . . . . . . . . . . 12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION . . . . . . . . . . . . . . . . . . . . . . . 13 (a) COMPUTATION OF CONSIDERATION . . . . . . . . . . . . . 13 (b) WHEN ADJUSTMENTS TO BE MADE .. . . . . . . . . . . . . 14 (c) FRACTIONAL INTERESTS . . . . . . . . . . . . . . . . . 15 (d) WHEN ADJUSTMENT NOT REQUIRED . . . . . . . . . . . . . 15 (e) ESCROW OF WARRANT STOCK .. . . . . . . . . . . . . . . 15 (f) CHALLENGE TO GOOD FAITH DETERMINATION. . . . . . . . . 15 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS . . . . . . . . . . 15 4.9. OTHER ACTION AFFECTING COMMON STOCK . . . . . . . . . . . . 16 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . 17 4.11. CERTAIN REDUCTIONS . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANT HOLDERS. . . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS . . . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION. . . . . . . . . . . . . 18 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . 18 8. PUT RIGHTS .. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -i- 9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . 19 9.1. RESTRICTIVE LEGEND. . . . . . . . . . . . . . . . . . . . . 19 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION . . 20 10. LOSS OR MUTILATION. . . . . . . . . . . . . . . . . . . . . . . . 20 11. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . . . 20 12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . 21 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.1. NONWAIVER AND EXPENSES . . . . . . . . . . . . . . . . . . 21 14.2. NOTICE GENERALLY . . . . . . . . . . . . . . . . . . . . . 21 14.3. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.4. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 22 14.5 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . 23 14.7. OFFICE OF THE COMPANY. . . . . . . . . . . . . . . . . . . 23 14.8. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 23 14.9. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . 23 14.10. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . 23 14.11. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . 23 14.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF FEBRUARY 20, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES E WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NASSAU CAPITAL PARTNERS L.P., a limited partnership organized under the laws of the State of Delaware ("Nassau Capital"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to the Warrant Value (as defined herein), and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series D Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement and (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and, (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. 3 "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve- month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean December 31, 1997. 4 "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Expiration Date" shall mean December 31, 2003. "Fully Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Registered Public Offering" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of February 20, 1996, by and among the Company, Nassau Capital Partners L.P. and NAS. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. 5 "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Value" shall have the meaning set forth in Section 2.1. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.2, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. WARRANT VALUE. The number of shares for which this Warrant shall be exercisable (the "WARRANT VALUE") shall be determined in accordance with the following, subject to adjustment as provided in Section 4 hereof: (a) if as of the Effective Date no Registered Public Offering and no Triggering Event shall have occurred, the Warrant Value shall be 195,023 shares; or (b) if one or more Registered Public Offerings shall have occurred prior to the Effective Date and no Triggering Event shall have occurred, the Warrant Value shall be determined on the Effective Date by reference to the value of the total common equity of the Company, on a Fully Diluted basis (the "EQUITY MARKET VALUE"), realized on the closing date of each such Registered Public Offering in accordance with the following: if the highest Equity Market Value realized on the closing date of any Registered Public Offering is (i) equal to or greater than $60,000,000 but less than $65,000,000, then the Warrant Value shall be 146,268 shares; (ii) equal to or greater than $65,000,000 but less than $70,000,000, then the Warrant Value shall be 97,512 shares; (iii) equal to or greater than $70,000,000 but less than $75,000,000, then the Warrant Value shall be 48,756 shares. 6 (c) if a Triggering Event shall have occurred prior to the Effective Date, then the Warrant Value shall be zero and the Warrant shall be null and void as of the date of such Triggering Event. 2.2. MANNER OF EXERCISE. From and after the date of the earlier to occur of (i) a Registered Public Offering and (ii) the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder; PROVIDED, HOWEVER, that if Section 2.1(c) is applicable, then this Warrant shall be void as of the date of occurrence of such Triggering Event. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President, and also at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate 7 notation may be made on this Warrant and the same returned to the Holder. 2.3. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.4. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.5. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.2 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant 8 not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of 9 Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a 10 change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which 11 shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall 12 be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the 13 case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible 14 Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as 15 aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, 16 consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to he performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements 17 related thereto, but excluding antidilution or other adjustment rights with respect to the Banc One Warrant (as defined in the Electra Agreement) and the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 4.11. CERTAIN REDUCTIONS. The number of shares of Common Stock for which this Warrant is exercisable shall be reduced by a number of shares of Common Stock equal to two percent (2%) of the sum of (i) the number of shares of Common Stock issuable to the holders of the Series B warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series B Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series B Warrants have been voided, (ii) the number of shares of Common Stock issuable to the holders of the Series C warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series C Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series C Warrants have been voided, (iii) the number of shares of Common Stock issuable to the holders of the Series D warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series D Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series D Warrants have been voided and (iv) the number of shares of Common Stock that have been authorized for issuance upon conversion or exercise of options to directors, officers or employees of the Company which are not issued as of the date of exercise of this Warrant. 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which 18 such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. 19 Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may he necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to he reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 7.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 20 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of Nassau Capital Partners L.P. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 5.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one 21 Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings. Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President 22 DeCrane Aircraft Holdings. Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 23 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Nassau Capital or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: February 20, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rauk ------------------------------------ Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to whose address is and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated: ------------------------ --------------------------------------- (Name of Registered Owner) --------------------------------------- (Signature of Registered Owner) --------------------------------------- (Street Address) --------------------------------------- (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ------------------------ ------------------------------ (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. EXECUTION COPY WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. E-2 Number of Shares of Common Stock: 1,067 TABLE OF CONTENTS PAGE ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. WARRANT VALUE . . . . . . . . . . . . . . . . . . . . . . . 5 2.2. MANNER OF EXERCISE .. . . . . . . . . . . . . . . . . . . . 6 2.3. PAYMENT OF TAXES .. . . . . . . . . . . . . . . . . . . . . 7 2.4. FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . 7 2.5. CONTINUED VALIDITY .. . . . . . . . . . . . . . . . . . . . 7 3. TRANSFER, DIVISION AND COMBINATION .. . . . . . . . . . . . . . . 7 3.1. TRANSFER .. . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2. DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . 8 3.3. EXPENSES .. . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4. MAINTENANCE OF BOOKS .. . . . . . . . . . . . . . . . . . . 8 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS .. . . . . . 8 4.2. CERTAIN OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . 9 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK . . . . . . . 10 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS . . . . . . . 11 4.5. ISSUANCE OF CONVERTIBLE SECURITIES .. . . . . . . . . . . . 12 4.6. SUPERSEDING ADJUSTMENT. . . . . . . . . . . . . . . . . . . 12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION . . . . . . . . . . . . . . . . . . . . . . . 13 (a) COMPUTATION OF CONSIDERATION . . . . . . . . . . . . . 13 (b) WHEN ADJUSTMENTS TO BE MADE .. . . . . . . . . . . . . 14 (c) FRACTIONAL INTERESTS . . . . . . . . . . . . . . . . . 15 (d) WHEN ADJUSTMENT NOT REQUIRED . . . . . . . . . . . . . 15 (e) ESCROW OF WARRANT STOCK .. . . . . . . . . . . . . . . 15 (f) CHALLENGE TO GOOD FAITH DETERMINATION. . . . . . . . . 15 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS . . . . . . . . . . 15 4.9. OTHER ACTION AFFECTING COMMON STOCK . . . . . . . . . . . . 16 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. . . . . 17 4.11. CERTAIN REDUCTIONS. . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANT HOLDERS .. . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS . . . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION .. . . . . . . . . . . . 18 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY. . . 18 8. PUT RIGHTS .. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -i- 9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . 19 9.1. RESTRICTIVE LEGEND. . . . . . . . . . . . . . . . . . . . . 19 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . 20 10. LOSS OR MUTILATION. . . . . . . . . . . . . . . . . . . . . . . . 20 11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . 20 12. APPRAISAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . 21 14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.1. NONWAIVER AND EXPENSES. . . . . . . . . . . . . . . . . . . 21 14.2. NOTICE OF GENERALLY . . . . . . . . . . . . . . . . . . . . 21 14.3. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.4. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 22 14.5 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . 23 14.7. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . 23 14.8. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 23 14.9. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.10. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . 23 14.11. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.12. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF FEBRUARY 20, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES E WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NAS PARTNERS I L.L.C., a limited liability company organized under the laws of the State of Delaware ("NAS"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to the Warrant Value (as defined herein), and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series D Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement and (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and, (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. 3 "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean December 31, 1997. 4 "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Expiration Date" shall mean December 31, 2003. "Fully Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Registered Public Offering" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of February 20, 1996, by and among the Company, Nassau Capital Partners L.P. and NAS. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. 5 "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Value" shall have the meaning set forth in Section 2.1. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.2, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. WARRANT VALUE. The number of shares for which this Warrant shall be exercisable (the "WARRANT VALUE") shall be determined in accordance with the following, subject to adjustment as provided in Section 4 hereof: (a) if as of the Effective Date no Registered Public Offering and no Triggering Event shall have occurred, the Warrant Value shall be 1,067 shares; or (b) if one or more Registered Public Offerings shall have occurred prior to the Effective Date and no Triggering Event shall have occurred, the Warrant Value shall he determined on the Effective Date by reference to the value of the total common equity of the Company, on a Fully Diluted basis (the "EQUITY MARKET VALUE"), realized on the closing date of each such Registered Public Offering in accordance with the following: if the highest Equity Market Value realized on the closing date of any Registered Public Offering is (i) equal to or greater than $60,000,000 but less than $65,000,000, then the Warrant Value shall be 801 shares; (ii) equal to or greater than $65,000,000 but less than $70,000,000, then the Warrant Value shall be 534 shares; (iii) equal to or greater than $70,000,000 but less than $75,000,000, then the Warrant Value shall be 267 shares. 6 (c) if a Triggering Event shall have occurred prior to the Effective Date, then the Warrant Value shall be zero and the Warrant shall be null and void as of the date of such Triggering Event. 2.2. MANNER OF EXERCISE. From and after the date of the earlier to occur of (i) a Registered Public Offering and (ii) the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder; PROVIDED, HOWEVER, that if Section 2.1(c) is applicable, then this Warrant shall be void as of the date of occurrence of such Triggering Event. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President, and also at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall he deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate 7 notation may be made on this Warrant and the same returned to the Holder. 2.3. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.4. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.5. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.2 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant 8 not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of 9 Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a 10 change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which 11 shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall 12 be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the 13 case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible 14 Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as 15 aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION. MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, 16 consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to he performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether Outstanding at the Closing Date or hereafter issued and together with any agreements 17 related thereto, but excluding antidilution or other adjustment rights with respect to the Banc One Warrant (as defined in the Electra Agreement) and the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 4.11. CERTAIN REDUCTIONS. The number of shares of Common Stock for which this Warrant is exercisable shall be reduced by a number of shares of Common Stock equal to two percent (2%) of the sum of (i) the number of shares of Common Stock issuable to the holders of the Series B warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series B Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series B Warrants have been voided, (ii) the number of shares of Common Stock issuable to the holders of the Series C warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series C Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series C Warrants have been voided, (iii) the number of shares of Common Stock issuable to the holders of the Series D warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series D Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series D Warrants have been voided and (iv) the number of shares of Common Stock that have been authorized for issuance upon conversion or exercise of options to directors, officers or employees of the Company which are not issued as of the date of exercise of this Warrant. 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which 18 such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. 19 Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may he necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 7.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 20 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of NAS Partners I L.L.C. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 5.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one 21 Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings. Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President 22 DeCrane Aircraft Holdings. Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 23 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of NAS or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: February 20, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rauk ------------------------------------ Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to whose address is and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated: ------------------------ --------------------------------------- (Name of Registered Owner) --------------------------------------- (Signature of Registered Owner) --------------------------------------- (Street Address) --------------------------------------- (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint __________________________ ____________ attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ------------------------ --------------------------------------- (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. EX-10.28 28 EXHIBIT 10.28 EXHIBIT 10.28 EXECUTION COPY -------------- WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. F-1 Number of Shares of Common Stock: 195,023 TABLE OF CONTENTS Page ---- 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . . . 5 2.2. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . 6 2.3. FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . . . 6 2.4. CONTINUED VALIDITY . . . . . . . . . . . . . . . . . . . . . 6 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . 6 3.1. TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2. DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . 7 3.3. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.4. MAINTENANCE OF BOOKS . . . . . . . . . . . . . . . . . . . . . 7 4. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS . . . . . . . . 7 4.2. CERTAIN OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . 8 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. . . . . . . . . 9 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. . . . . . . . . 10 4.5. ISSUANCE OF CONVERTIBLE SECURITIES . . . . . . . . . . . . . . 11 4.6. SUPERSEDING ADJUSTMENT . . . . . . . . . . . . . . . . . . . . 12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION . . . . . . . . . . . . . . . . . . . . . . . . . 12 (a) COMPUTATION OF CONSIDERATION . . . . . . . . . . . . . . . 12 (b) WHEN ADJUSTMENTS TO BE MADE .. . . . . . . . . . . . . . . 13 (c) FRACTIONAL INTERESTS . . . . . . . . . . . . . . . . . . . 14 (d) WHEN ADJUSTMENT NOT REQUIRED . . . . . . . . . . . . . . . 14 (e) ESCROW OF WARRANT STOCK .. . . . . . . . . . . . . . . . . 14 (f) CHALLENGE TO GOOD FAITH DETERMINATION .. . . . . . . . . . 14 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS . . . . . . . . . . . . 15 4.9. OTHER ACTION AFFECTING COMMON STOCK. . . . . . . . . . . . . . 16 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . 16 4.11. CERTAIN REDUCTIONS . . . . . . . . . . . . . . . . . . . . . . 16 5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION . . . . . . . . . . . . . 17 6. NO IMPAIRMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . 17 8. PUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 -i- 9. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . 18 9.1. RESTRICTIVE LEGEND . . . . . . . . . . . . . . . . . . . . . . . 18 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. . . . . 19 10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . 19 12. APPRAISAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.1. NONWAIVER AND EXPENSES. . . . . . . . . . . . . . . . . . . . . 20 14.2. NOTICE GENERALLY. . . . . . . . . . . . . . . . . . . . . . . . 20 14.3. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.4. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 21 14.5. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . 22 14.7. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 22 14.8. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.9. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.10. SEVERABILITY .. . . . . . . . . . . . . . . . . . . . . . . . . 22 14.11. HEADINGS .. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF FEBRUARY 20, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES F WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NASSAU CAPITAL PARTNERS L.P., a limited partnership organized under the laws of the State of Delaware ("Nassau Capital"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to 195,023 shares, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series D Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement and (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. 3 "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean December 31, 1998. 4 "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Expiration Date" shall mean December 31, 2003. "Fully-Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of February 20, 1996, by and among the Company, Nassau Capital and NAS Partners I L.L.C. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. MANNER OF EXERCISE. From and after the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder; provided, however, that if a Triggering Event shall have occurred prior to the Effective Date this Warrant shall be void as of the date of occurrence of such Triggering Event. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President and at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall he substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, 6 together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.3. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such 7 purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to SECTION 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, 8 (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, 9 other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall he deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately 10 after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the 11 Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 12 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or 13 receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except 14 that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall he carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall he deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good 15 faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoinq provisions of this Section 4.8 shall similarly apply to 16 successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 4.11. CERTAIN REDUCTIONS. The number of shares of Common Stock for which this Warrant is exercisable shall be reduced by a number of shares of Common Stock equal to two percent (2%) of the sum of (i) the number of shares of Common Stock issuable to the holders of the Series B warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series B Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series B Warrants have been voided, (ii) the number of shares of Common Stock issuable to the holders of the Series C warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series C Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series C Warrants have been voided, (iii) the number of shares of Common Stock issuable to the holders of the Series D warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series D Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series D Warrants have been voided and (iv) the number of shares of Common Stock that have been authorized for issuance upon conversion or exercise of options to directors, officers or employees of the Company which are not issued as of the date of exercise of this Warrant. 17 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY 18 The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 7.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or 19 otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS: REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of Nassau Capital Partners L.P. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 5.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a 20 majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30 day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 21 (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings. Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 22 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Nassau Capital or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 23 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: February 20, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rankin -------------------------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _______shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to __________ whose address is _________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated:______________________ ___________________________________ (Name of Registered Owner) ___________________________________ (Signature of Registered Owner) ___________________________________ (Street Address) ___________________________________ (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint ___________ attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:____________________ ___________________________________ (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. EXECUTION COPY -------------- WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. F-2 Number of Shares of Common Stock: 1,067 TABLE OF CONTENTS Page ---- 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . . . . 5 2.2. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . 6 2.3. FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . . . . 6 2.4. CONTINUED VALIDITY . . . . . . . . . . . . . . . . . . . . . . 6 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . 6 3.1. TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2. DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . 7 3.3. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.4. MAINTENANCE OF BOOKS . . . . . . . . . . . . . . . . . . . . . 7 4. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS . . . . . . . . 7 4.2. CERTAIN OTHER DISTRIBUTIONS. . . . . . . . . . . . . . . . . . 8 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. . . . . . . . . 9 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. . . . . . . . . 10 4.5. ISSUANCE OF CONVERTIBLE SECURITIES . . . . . . . . . . . . . . 11 4.6. SUPERSEDING ADJUSTMENT.............. . . . . . . . . . . . . . 12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION . . . . . . . . . . . . . . . . . . . . . . . 12 (a) COMPUTATION OF CONSIDERATION. . . . . . . . . . . . . . . 12 (b) WHEN ADJUSTMENTS TO BE MADE . . . . . . . . . . . . . . . 13 (c) FRACTIONAL INTERESTS. . . . . . . . . . . . . . . . . . . 14 (d) WHEN ADJUSTMENT NOT REQUIRED. . . . . . . . . . . . . . 14 (e) ESCROW OF WARRANT STOCK . . . . . . . . . . . . . . . . . 14 (f) CHALLENGE TO GOOD FAITH DETERMINATION . . . . . . . . . . 14 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS . . . . . . . . . . . 15 4.9. OTHER ACTION AFFECTING COMMON STOCK. . . . . . . . . . . . . . 16 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.11. CERTAIN REDUCTIONS . . . . . . . . . . . . . . . . . . . . . 16 5. NOTICES TO WARRANT HOLDERS .. . . . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION . . . . . . . . . . . . . 17 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8. PUT RIGHTS .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 -i- 9. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . 18 9.1. RESTRICTIVE LEGEND . . . . . . . . . . . . . . . . . . . . . . 18 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 19 10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . 19 12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.1. NONWAIVER AND EXPENSES. . . . . . . . . . . . . . . . . . . . 20 14.2. NOTICE GENERALLY. . . . . . . . . . . . . . . . . . . . . . . 20 14.3. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.4. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 21 14.5. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . 22 14.7. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 22 14.8. INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.9. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.10. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 22 14.11. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF FEBRUARY 20, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES F WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NAS PARTNERS I L.L.C., a limited liability company organized under the laws of the State of Delaware ("NAS"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to 1,067 shares, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series D Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement and (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. 3 "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean December 31, 1998. 4 "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Expiration Date" shall mean December 31, 2003. "Fully-Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares heing issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of February 20, 1996, by and among the Company, Nassau Capital Partners L.P. and NAS. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. MANNER OF EXERCISE. From and after the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder; provided, however, that if a Triggering Event shall have occurred prior to the Effective Date this Warrant shall be void as of the date of occurrence of such Triggering Event. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President and at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, 6 together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.3. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such 7 purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the ompany, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS; SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, 8 (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, 9 other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall he deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately 10 after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the 11 Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 12 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or 13 receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except 14 that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good 15 faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoinq provisions of this Section 4.8 shall similarly apply to 16 successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 4.11. CERTAIN REDUCTIONS. The number of shares of Common Stock for which this Warrant is exercisable shall be reduced by a number of shares of Common Stock equal to two percent (2%) of the sum of (i) the number of shares of Common Stock issuable to the holders of the Series B warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series B Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series B Warrants have been voided, (ii) the number of shares of Common Stock issuable to the holders of the Series C warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series C Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series C Warrants have been voided, (iii) the number of shares of Common Stock issuable to the holders of the Series D warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series D Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series D Warrants have been voided and (iv) the number of shares of Common Stock that have been authorized for issuance upon conversion or exercise of options to directors, officers or employees of the Company which are not issued as of the date of exercise of this Warrant. 17 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY 18 The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 7.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or 19 otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of NAS Partners I L.L.C. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 5.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a 20 majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 21 (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 22 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of NAS or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 23 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: February 20, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rankin -------------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ________ shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to ____________ whose address is ____________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated:_______________________ ________________________________________ (Name of Registered Owner) ________________________________________ (Signature of Registered Owner) ________________________________________ (Street Address) ________________________________________ (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint ____________ attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:_______________________ ________________________________________ (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. EX-10.29 29 SERIES G WARRANTS TO PURCHASE COMMON STOCK EXECUTION COPY WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. G-1 Number of Shares of Common Stock: 292,534 TABLE OF CONTENTS Page ---- 1. DEFINITIONS.............................................................1 2. EXERCISE OF WARRANT.....................................................5 2.1. MANNER OF EXERCISE................................................5 2.2. PAYMENT OF TAXES..................................................6 2.3. FRACTIONAL SHARES.................................................6 2.4. CONTINUED VALIDITY................................................6 3. TRANSFER, DIVISION AND COMBINATION......................................6 3.1. TRANSFER..........................................................6 3.2. DIVISION AND COMBINATION..........................................7 3.3. EXPENSES..........................................................7 3.4. MAINTENANCE OF BOOKS..............................................7 4. ADJUSTMENTS.............................................................7 4.1. STOCK DIVIDENDS. SUBDIVISIONS AND COMBINATIONS....................7 4.2. CERTAIN OTHER DISTRIBUTIONS.......................................8 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.....................9 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS....................10 4.5. ISSUANCE OF CONVERTIBLE SECURITIES...............................11 4.6. SUPERSEDING ADJUSTMENT...........................................12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION....................................................12 (a) COMPUTATION OF CONSIDERATION................................12 (b) WHEN ADJUSTMENTS TO BE MADE.................................13 (c) FRACTIONAL INTERESTS........................................14 (d) WHEN ADJUSTMENT NOT REQUIRED................................14 (e) ESCROW OF WARRANT STOCK.....................................14 (f) CHALLENGE TO GOOD FAITH DETERMINATION.......................14 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS..........................15 4.9. OTHER ACTION AFFECTING COMMON STOCK..............................16 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS...........................................................16 4.11. CERTAIN REDUCTIONS..............................................16 5. NOTICES TO WARRANT HOLDERS.............................................17 5.1. NOTICE OF ADJUSTMENTS............................................17 5.2. NOTICE OF CERTAIN CORPORATE ACTION...............................17 6. NO IMPAIRMENT..........................................................17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY..............................................................17 8. PUT RIGHTS.............................................................18 -i- 9. RESTRICTIONS ON TRANSFER...............................................18 9.1. RESTRICTIVE LEGEND...............................................18 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION....................................................19 10. LOSS OR MUTILATION.....................................................19 11. FINANCIAL AND BUSINESS INFORMATION.....................................19 12. APPRAISAL..............................................................19 13. LIMITATION OF LIABILITY................................................20 14. MISCELLANEOUS..........................................................20 14.1. NONWAIVER AND EXPENSES..........................................20 14.2. NOTICE GENERALLY................................................20 14.3. VOTING..........................................................21 14.4. INDEMNIFICATION.................................................21 14.5. REMEDIES........................................................22 14.6. SUCCESSORS AND ASSIGNS..........................................22 14.7. OFFICE OF THE COMPANY...........................................22 14.8. INFORMATION.....................................................22 14.9. AMENDMENT.......................................................22 14.10. SEVERABILITY...................................................22 14.11. HEADINGS.......................................................22 14.12. GOVERNING LAW..................................................23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF FEBRUARY 20, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES G WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NASSAU CAPITAL PARTNERS L.P., a limited partnership organized under the laws of the State of Delaware ("Nassau Capital"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to 292,534 shares, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series D Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement and (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going concern basis in a single arm's length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and, (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. 3 "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean December 31, 1998. 4 "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Expiration Date" shall mean December 31, 2003. "Fully Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of February 20, 1996, by and among the Company, Nassau Capital and NAS Partners I L.L.C. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Price" shall mean an amount equal to (i) the number of shares o& Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. MANNER OF EXERCISE. From and after the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder; provided, however, that if a Triggering Event shall have occurred prior to the Effective Date this Warrant shall be void as of the date of occurrence of such Triggering Event. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President and at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, 6 together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.3. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such 7 purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, 8 (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any less shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, 9 other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately 10 after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the 11 Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 12 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or 13 receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except 14 that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good 15 faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to 16 successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 4.11. CERTAIN REDUCTIONS. The number of shares of Common Stock for which this Warrant is exercisable shall be reduced by a number of shares of Common Stock equal to three percent (3%) of the sum of (i) the number of shares of Common Stock issuable to the holders of the Series B warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series B Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series B Warrants have been voided, (ii) the number of shares of Common Stock issuable to the holders of the Series C warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series C Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series C Warrants have been voided, (iii) the number of shares of Common Stock issuable to the holders of the Series D warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series D Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series D Warrants have been voided and (iv) the number of shares of Common Stock that have been authorized for issuance upon conversion or exercise of options to directors, officers or employees of the Company which are not issued as of the date of exercise of this Warrant. 17 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant co Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY 18 The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 7.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or 19 otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of Nassau Capital Partners L.P. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 5.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a 20 majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30 day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 21 (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings. Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall he deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 22 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Nassau Capital or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 23 14.12. Governing Law. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: February 20, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rank -------------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _______ shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________ whose address is __________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated:_____________________ __________________________________ (Name of Registered Owner) __________________________________ (Signature of Registered Owner) __________________________________ (Street Address) __________________________________ (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ----------------- and does hereby irrevocably constitute and appoint _____________________ attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:__________________ ______________________________ (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. EXECUTION COPY WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. G-2 Number of Shares of Common Stock: 1,601 TABLE OF CONTENTS Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . . . 5 2.2. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . 6 2.3. FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . . . 6 2.4. CONTINUED VALIDITY . . . . . . . . . . . . . . . . . . . . . 6 3. TRANSFER, DIVISION AND COMBINATION. . . . . . . . . . . . . . . . . 6 3.1. TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2. DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . 7 3.3. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.4. MAINTENANCE OF BOOKS . . . . . . . . . . . . . . . . . . . . 7 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS . . . . . . . 7 4.2. CERTAIN OTHER DISTRIBUTIONS. . . . . . . . . . . . . . . . . 8 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. . . . . . . . 9 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. . . . . . . . 10 4.5. ISSUANCE OF CONVERTIBLE SECURITIES . . . . . . . . . . . . . 11 4.6. SUPERSEDING ADJUSTMENT . . . . . . . . . . . . . . . . . . . 12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. . . . . . . . . . . . . . . . . . . . . . . . 12 (a) COMPUTATION OF CONSIDERATION. . . . . . . . . . . . . . 12 (b) WHEN ADJUSTMENTS TO BE MADE . . . . . . . . . . . . . . 13 (c) FRACTIONAL INTERESTS. . . . . . . . . . . . . . . . . . 14 (d) WHEN ADJUSTMENT NOT REQUIRED. . . . . . . . . . . . . . 14 (e) ESCROW OF WARRANT STOCK . . . . . . . . . . . . . . . . 14 (f) CHALLENGE TO GOOD FAITH DETERMINATION . . . . . . . . . 14 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. . . . . . . . . . . 15 4.9. OTHER ACTION AFFECTING COMMON STOCK. . . . . . . . . . . . . 16 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.11. CERTAIN REDUCTIONS . . . . . . . . . . . . . . . . . . . . . 16 5. NOTICES TO WARRANT HOLDERS. . . . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION . . . . . . . . . . . . . 17 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . 17 8. PUT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 -i- 9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . 18 9.1. RESTRICTIVE LEGEND . . . . . . . . . . . . . . . . . . . . . 18 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 19 10. LOSS OR MUTILATION. . . . . . . . . . . . . . . . . . . . . . . . . 19 11. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . . . . 19 12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.1. NONWAIVER AND EXPENSES . . . . . . . . . . . . . . . . . . . 20 14.2. NOTICE GENERALLY . . . . . . . . . . . . . . . . . . . . . . 20 14.3. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.4. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 21 14.5. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . 22 14.7. OFFICE OF THE COMPANY. . . . . . . . . . . . . . . . . . . . 22 14.8. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 22 14.9. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.10. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 22 14.11. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.12. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF FEBRUARY 20, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES G WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NAS PARTNERS I L.L.C., a limited liability company organized under the laws of the State of Delaware ("NAS"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock (as defined herein) which shall be initially equal to 1,601 shares, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series D Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement and (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase Warrant, dated as of November 2, 1994, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion or exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. 3 "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Credit Agreement, dated as of November 2, 1994, between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) 5.67 times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean December 31, 1998. 4 "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Expiration Date" shall mean December 31, 2003. "Fully Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of February 20, 1996, by and among the Company, Nassau Capital Partners L.P. and NAS. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Triggering Event" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANTT 2.1. MANNER OF EXERCISE. From and after the Effective Date, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder; provided, however, that if a Triggering Event shall have occurred prior to the Effective Date this Warrant shall be void as of the date of occurrence of such Triggering Event. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President and at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, 6 together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.3. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such 7 purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, 8 (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, 9 other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately 10 after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the 11 Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 12 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or 13 receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except 14 that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good 15 faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to 16 successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 4.11. CERTAIN REDUCTIONS. The number of shares of Common Stock for which this Warrant is exercisable shall be reduced by a number of shares of Common Stock equal to three percent (3%) of the sum of (i) the number of shares of Common Stock issuable to the holders of the Series B warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series B Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series B Warrants have been voided, (ii) the number of shares of Common Stock issuable to the holders of the Series C warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series C Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series C Warrants have been voided, (iii) the number of shares of Common Stock issuable to the holders of the Series D warrants issued in connection with the transactions contemplated by the Electra Agreement (the "Series D Warrants"), if prior to the date of exercise of this Warrant a Triggering Event as defined in the Electra Agreement has occurred and the Series D Warrants have been voided and (iv) the number of shares of Common Stock that have been authorized for issuance upon conversion or exercise of options to directors, officers or employees of the Company which are not issued as of the date of exercise of this Warrant. 17 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY 18 The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 7.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or 19 otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of NAS Partners I L.L.C. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 5.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a 20 majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 21 (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings. Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 22 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of NAS or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 23 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: February 20, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ Robert Rankin -------------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _____ shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to ________________ whose address is ____________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated: ----------------------- ---------------------------------------- (Name of Registered Owner) ---------------------------------------- (Signature of Registered Owner) ---------------------------------------- (Street Address) ---------------------------------------- (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint _______________________ attorney in fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ------------------ -------------------------- (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. EX-10.30 30 EXHIBIT 10.30 WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. H-1 Number of Shares of Common Stock: [15] 114,352 TABLE OF CONTENTS Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. WARRANT VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2. MANNER OF EXERCISE. . . . . . . . . . . . . . . . . . . . . . . . 6 2.3. PAYMENT OF TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4. FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . 7 2.5. CONTINUED VALIDITY. . . . . . . . . . . . . . . . . . . . . . . . 7 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . [16] 8 3.1. TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . .[17] 8 3.2. DIVISION AND COMBINATION. . . . . . . . . . . . . . . . . . . . . 8 3.3. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4. MAINTENANCE OF BOOKS. . . . . . . . . . . . . . . . . . . . . . . 8 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. . . . . . . . . . 8 4.2. CERTAIN OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . 9 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK . . . . . . . . . . 10 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS . . . . . . . . . . 11 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. . . . . . . . . . . . . . . . 12 4.6. SUPERSEDING ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . 13 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (a) COMPUTATION OF CONSIDERATION. . . . . . . . . . . . . . . . . 13 (b) WHEN ADJUSTMENTS TO BE MADE . . . . . . . . . . . . . . . [18] 15 (c) FRACTIONAL INTERESTS. . . . . . . . . . . . . . . . . . . . . 15 (d) WHEN ADJUSTMENT NOT REQUIRED. . . . . . . . . . . . . . . . . 15 (e) ESCROW OF WARRANT STOCK . . . . . . . . . . . . . . . . . . . 15 (f) CHALLENGE TO GOOD FAITH DETERMINATION . . . . . . . . . . [19] 16 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS . . . . . . . . . . . . . 16 4.9. OTHER ACTION AFFECTING COMMON STOCK . . . . . . . . . . . . . . . 17 4.10. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANT HOLDERS. . . . . . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION. . . . . . . . . . . . . . [20] 18 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8. PUT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -i- 9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . 19 9.1. RESTRICTIVE LEGEND. . . . . . . . . . . . . . . . . . . . . . . . 19 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20 11. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . . . . . . 20 12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.1. NONWAIVER AND EXPENSES . . . . . . . . . . . . . . . . . . . . . 21 14.2. NOTICE GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . 21 14.3. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.4. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 22 14.5. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 22 14.7. OFFICE OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . 22 14.8. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.9. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.10. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.11. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE FOURTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER [1] 18, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES H-1 WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT NASSAU CAPITAL PARTNERS L.P., a limited partnership organized under the laws of the State of Delaware ("Nassau Capital"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock which shall be initially equal to the Warrant Value, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series E Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement, (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, dated as of February 20, 1996 and (z) the Series H and I warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase [2] Warrants, dated as of November 2, 1994 and September 18, 1996, respectively, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase [3] Warrants, dated as of November 2, 1994 and September 18, 1996, respectively, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion, exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date [4]. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going-concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. 3 "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Amended and Restated Credit Agreement, dated as of [5] September 18, 1996 between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) [5.67] times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve--month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at 4 which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean the Closing Date. "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Exercise Date" shall have the meaning set forth in Section 2.2 hereof. "Expiration Date" shall mean December 31, 2006. "Fully-Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Private Financing" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Private Financing Price" shall mean the effective price per share of Common Stock received by the Company in connection with a Private Financing, which Private Financing Price shall be equal to the sum of the aggregate value, at the date of closing, of equity invested pursuant to such Private Financing divided by the sum of the aggregate number of shares of Common Stock issued on such closing date plus the number of shares of Common Stock issuable upon the exercise or exchange of Convertible Securities issued in connection with such Private Financing. "RPO Price" shall mean the effective price per share of Common Stock received by the Company in connection with a Registered Public Offering, whether the consideration for such shares is paid in cash or otherwise. "Registered Public Offering" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of September [6] 18, 1996, by and among the Company, Nassau Capital, NAS Partners I L.L.C. [7] and Electra Investment Trust P.L.C. [8] "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Value" shall have the meaning set forth in Section 2.1. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.2, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. WARRANT VALUE. The number of shares for which this Warrant shall be exercisable (the "WARRANT VALUE") shall be determined in accordance with the following, subject to adjustment as provided in Section 4 hereof: 6 (a) if as of any Exercise Date no Registered Public Offering shall have occurred, the Warrant Value shall be [9] 114,352 shares; (b) if one or more Private Financings shall have occurred prior to any Exercise Date and no Registered Public Offering shall have occurred, the Warrant Value on such Exercise Date shall be the greater of (i) [10] 114,352 shares or (ii) the number of shares determined pursuant to the following formula: [11] $1,982,249 - 495,562 shares; or ----------------------------------------- --------- 80% of the lowest Private Financing Price (c) if one or more Registered Public Offerings shall have occurred prior to any Exercise Date, the Warrant Value on such Exercise Date shall be the greater of (i) [12] 114,352 shares or (ii) the number of shares determined pursuant to the following formula: [13] $1,982,249 - 495,562 shares; or --------------------------- --------- 80% of the lowest RPO Price 2.2. MANNER OF EXERCISE. From and after the date hereof, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President, and also at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. 7 This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2 (the "Exercise Date"). If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.3. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.4. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.5. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 8 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.2 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: 9 (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market 10 Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the than existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for 11 which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the 12 exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of 13 Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, 14 or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 15 (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. 16 (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either 17 immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive reorganizations, reclassification, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Banc One Warrant (as defined in the Electra Agreement) and the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 18 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 19 If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 9.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS: REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 20 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of Nassau Capital Partners L.P. and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS-INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 7.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall the final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no 21 enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings, Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 22 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Nassau Capital or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 23 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: September [14] 18, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: -------------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of __________ shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _______________ whose address is ____________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated: ------------------- ----------------------------------- (Name of Registered Owner) ----------------------------------- (Signature of Registered Owner) ----------------------------------- (Street Address) ----------------------------------- (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint ________________ attorney in fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ------------------- ----------------------------------- (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC Warrant No. H-[21] 2 Number of Shares of Common Stock: [22] 1,021 TABLE OF CONTENTS Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . .5 2.1. WARRANT VALUE . . . . . . . . . . . . . . . . . . . . . .5 2.2. MANNER OF EXERCISE. . . . . . . . . . . . . . . . . . . .6 2.3. PAYMENT OF TAXES. . . . . . . . . . . . . . . . . . . . 7 2.4. FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . .7 2.5. CONTINUED VALIDITY. . . . . . . . . . . . . . . . . . . .7 3. TRANSFER, DIVISION AND COMBINATION. . . . . . . . . . . . . . .7 3.1. TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . .7 3.2. DIVISION AND COMBINATION. . . . . . . . . . . . . . . . .8 3.3. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . .8 3.4. MAINTENANCE OF BOOKS. . . . . . . . . . . . . . . . . . .8 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .8 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. . . . . .8 4.2. CERTAIN OTHER DISTRIBUTIONS . . . . . . . . . . . . . . .9 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK . . . . . 10 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS . . . . . 11 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. . . . . . . . . . . 12 4.6. SUPERSEDING ADJUSTMENT. . . . . . . . . . . . . . . . . 13 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. . . . . . . . . . . . . . . . . . . . . . 13 (a) COMPUTATION OF CONSIDERATION. . . . . . . . . . . . 13 (b) WHEN ADJUSTMENTS TO BE MADE . . . . . . . . . . . . 14 (c) FRACTIONAL INTERESTS. . . . . . . . . . . . . . . . 15 (d) WHEN ADJUSTMENT NOT REQUIRED. . . . . . . . . . . . 15 (e) ESCROW OF WARRANT STOCK . . . . . . . . . . . . . . 15 (f) CHALLENGE TO GOOD FAITH DETERMINATION . . . . . . . 15 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS . . . . . . . . 16 4.9. OTHER ACTION AFFECTING COMMON STOCK . . . . . . . . . . 17 4.10. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANT HOLDERS. . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION. . . . . . . . . . . 17 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . 18 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8. PUT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . 19 -i- 9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . 19 9.1. RESTRICTIVE LEGEND. . . . . . . . . . . . . . . . . . . 19 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. . . . . . . . . . . . . . . . . . . . . 19 10. LOSS OR MUTILATION. . . . . . . . . . . . . . . . . . . . . . 20 11. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . 20 12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 21 14.1. NONWAIVER AND EXPENSES . . . . . . . . . . . . . . . . 21 14.2. NOTICE GENERALLY . . . . . . . . . . . . . . . . . . . 21 14.3 VOTING . . . . . . . . . . . . . . . . . . . . . . . . 22 14.4. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 22 14.5. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . 22 14.7. OFFICE OF THE COMPANY. . . . . . . . . . . . . . . . . 22 14.8. INFORMATION. . . . . . . . . . . . . . . . . . . . . . 23 14.9. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . 23 14.10. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . 23 14.11. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . 23 14.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . 23 -ii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE FOURTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER [1] 18, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES H-2 WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT [2] NAS PARTNERS [3] I.L.L.C,. a limited [4] Liability Company organized under the laws of the State of Delaware (" [5] NAS"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock which shall be initially equal to the Warrant Value, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series E Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used hut not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions 2 contemplated by the Electra Agreement, (y) the Series E, F and G warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, dated as of February 20, 1996 and (z) the Series H and I warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase [6] Warrants, dated as of November 2, 1994 and September 18, 1996, respectively, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase [7] Warrants, dated as of November 2, 1994 and September 18, 1996, respectively, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion, exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date [8]. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going concern basis in a single arm's length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. 3 "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain amended and Restated Credit Agreement, dated as of [9] September 18, 1996 between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) [5.67] times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve-month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at 4 which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean the Closing Date. "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Exercise Date" shall have the meaning set forth in Section 2.2 hereof. "Expiration Date" shall mean December 31, 2006. "Fully-Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "GAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Private Financing" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Private Financing Price" shall mean the effective price per share of Common Stock received by the Company in connection with a Private Financing, which Private Financing price shall be equal to the sum of the aggregate value, at the date of closing, of equity invested pursuant to such Private Financing divided by the sum of the aggregate number of shares of Common Stock issued on such closing date plus the number of shares of Common Stock issuable upon the exercise or exchange of Convertible Securities issued in connection with such Private Financing. "RPO Price" shall mean the effective price per share of Common Stock received by the Company in connection with a Registered Public Offering, whether the consideration for such shares is paid in cash or otherwise. "Registered Public Offering" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of September [10] 18, 1996, by and among the Company, Nassau Capital, NAS Partners I L.L.C. [13] and Electra Investment Trust P.L.C. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Value" shall have the meaning set forth in Section 2.1. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.2, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. WARRANT VALUE. The number of shares for which this Warrant shall be exercisable (the "WARRANT VALUE") shall be determined in accordance with the following, subject to adjustment as provided in Section 4 hereof: 6 (a) if as of any Exercise Date no Registered Public Offering shall have occurred, the Warrant Value shall be [13] 1,021 shares; (b) if one or more Private Financings shall have occurred prior to any Exercise Date and no Registered Public Offering shall have occurred, the Warrant Value on such Exercise Date shall be the greater of (i) [14] 1,021 shares or (ii) the number of shares determined pursuant to the following formula: [15] $17,751.00 - ----------------------------------------------- 80% of the lowest Private Financing Price - 4,438 shares; or (c) if one or more Registered Public Offerings shall have occurred prior to any Exercise Date, the Warrant Value on such Exercise Date shall be the greater of (i) [16] 1,021 shares or (ii) the number of shares determined pursuant to the following formula: [17] $17,751.00 - --------------------------------- 80% of the lowest RPO Price - 4,438 shares; or 2.2. MANNER OF EXERCISE. From and after the date hereof, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President, and also at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. 7 This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2 (the "Exercise Date"). If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.3. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.4. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.5. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 8 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.2 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: 9 (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market 10 Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for 11 which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (B) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the 12 exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall he made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of 13 Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall he made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, 14 or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 15 (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. 16 (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either 17 immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive reorganizations, reclassification, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Banc One Warrant (as defined in the Electra Agreement) and the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 18 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 19 If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 9.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS: REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 20 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of [18] NAS and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 7.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no 21 enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings, Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings. Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 22 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of [19] NAS or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 23 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 24 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: September [20] 18, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ___________ shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _____________ whose address is _____________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated: ________________________ ------------------------------------ (Name of Registered Owner) ------------------------------------ (Signature of Registered Owner) ------------------------------------ (Street Address) ------------------------------------ (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - -------------------------------- ---------------- and does hereby irrevocably constitute and appoint _________________ attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: _____________________ ---------------------------------- (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. -------------------- DELETIONS -------------------- [1] [2] NASSAU CAPITAL [3] L.P., [4] partnership [5] Nassau Capital [6] Warrant [7] Warrant [8] or (viii) shares of Common Stock issuable [in connection with the senior debt financing portion of the ADS asset purchase] [9] November 2, 1994, [10] ___ [11] [12] and Electra Associates, Inc. [13] ________________ [14] ___________ [15] [$3 million] - 750,000 [16] __________ [17] [$3 million] - 750,000 [18] Nassau Capital Partners L.P. [19) Nassau Capital [20] ____ [21] 1 [22]_______________ -iii- WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. Warrant No. H-[21] 3 Number of Shares of Common Stock: [22] 57,704 TABLE OF CONTENTS Page ---- 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . 5 2.1. WARRANT VALUE. . . . . . . . . . . . . . . . . . . . . . 5 2.2. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . 6 2.3. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . 7 2.4. FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . 7 2.5. CONTINUED VALIDITY . . . . . . . . . . . . . . . . . . . 7 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . 7 3.1. TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2. DIVISION AND COMBINATION. . . . . . . . . . . . . . . . . 8 3.3. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4. MAINTENANCE OF BOOKS. . . . . . . . . . . . . . . . . . . 8 4 ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS . . . . . 8 4.2. CERTAIN OTHER DISTRIBUTIONS. . . . . . . . . . . . . . . 9 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. . . . . . 10 4.4. ISSUANCE OF WARRANTS OPTIONS OR OTHER RIGHTS . . . . . . 11 4.5. ISSUANCE OF CONVERTIBLE SECURITIES . . . . . . . . . . . 12 4.6. SUPERSEDING ADJUSTMENT . . . . . . . . . . . . . . .[23] 12 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. . . . . . . . . . . . . . . . . . . . . . 13 (a) COMPUTATION OF CONSIDERATION. . . . . . . . . . . . 13 (b) WHEN ADJUSTMENTS TO BE MADE . . . . . . . . . . . . 14 (c) FRACTIONAL INTERESTS. . . . . . . . . . . . . . . . 15 (d) WHEN ADJUSTMENT NOT REQUIRED. . . . . . . . . . . . 15 (e) ESCROW OF WARRANT STOCK . . . . . . . . . . . . . . 15 (f) CHALLENGE TO GOOD FAITH DETERMINATION . . . . . . . 15 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. . . . . . . . . 16 4.9. OTHER ACTION AFFECTING COMMON STOCK. . . . . . . . . . . 17 4.10. TAKING OF RECORD, STOCK AND WARRANT TRANSFER BOOKS. . . . . . . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . 17 5.1. NOTICE OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . 17 5.2. NOTICE OF CERTAIN CORPORATE ACTION . . . . . . . . . . . 17 6. NO IMPAIRMENT. . . . . . . . . . . . . . . . . . . . . . . . . 18 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK, REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8. PUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -i- 9. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . 19 9.1. RESTRICTIVE LEGEND . . . . . . . . . . . . . . . . . . . 19 9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. . . . . . . . . . . . . . . . . . . . . . 19 10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . 20 11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . 20 12. APPRAISAL. . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . 20 14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 21 14.1. NONWAIVER AND EXPENSES . . . . . . . . . . . . . . . . 21 14.2. NOTICE GENERALLY . . . . . . . . . . . . . . . . . . . 21 14.3. VOTING . . . . . . . . . . . . . . . . . . . . . . . . 22 14.4. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 22 14.5. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 22 14.6. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . 22 14.7. OFFICE OF THE COMPANY. . . . . . . . . . . . . . . . . 22 14.8. INFORMATION. . . . . . . . . . . . . . . . . . . . . . 23 14.9. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . 23 14.10. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . 23 14.11. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . 23 14.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . 23 -ii- DELETIONS [1] ___ [2] NASSAU CAPITAL PARTNERS L.P., a limited partnership [3] State of Delaware ("Nassau Capital [4] Warrant [5] Warrant [6] or (viii) shares of Common Stock issuable [in connection with the senior debt financing portion of the ADS asset purchase] [7] November 2, 1994, [8] __ [9] , [10] and Electra Associates, Inc. [11] ___________ [12] ________ [13] [$3 [14] ] - 750,000 [15] _______ [16] [$3 [17] ] - 750,000 [18] Nassau Capital Partners L.P. [19] Nassau Capital [20] __ [21] 1 [22] _______ [23] 13 -iii- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE FOURTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER [1] 18, 1996, AMONG THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER HEREOF TO THE SECRETARY OF THE COMPANY. SERIES H-3 WARRANT To Purchase Common Stock of DeCRANE AIRCRAFT HOLDINGS, INC. THIS IS TO CERTIFY THAT [2] ELECTRA INVESTMENT TRUST P.L.C., a corporation organized under the laws of the [3] United Kingdom ("EIT"), or registered assigns (such person, together with any permitted transferee, is referred to herein as the "Holder"), is entitled, beginning on the Effective Date and at any time prior to the Expiration Date, to purchase from DeCRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), that number of shares of Common Stock which shall be initially equal to the Warrant Value, and which is subject to adjustment as provided herein, at a purchase price equal to the Current Warrant Price, which shall be initially equal to $0.01 per share and which is subject to adjustment as provided herein. This Warrant is issued in connection with the Holder's purchase on the date hereof of Series E Convertible Preferred Stock pursuant to the Securities Purchase Agreement. Capitalized terms used but not otherwise defined in this Warrant shall have the meanings ascribed to such terms in the Securities Purchase Agreement. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than (i) Warrant Stock, (ii) shares of Common Stock issuable to the holders of (x) the Series A, Series B, Series C and Series D warrants, issued in connection with the transactions contemplated by the Electra Agreement, (y) the Series E, F and G 2 warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, dated as of February 20, 1996 and (z) the Series H and I warrants issued in connection with the transactions contemplated by the Securities Purchase Agreement, (iii) shares of Common Stock issuable under the Common Stock Purchase [4] Warrants, dated as of November 2, 1994 and September 18, 1996, respectively, of the Company in favor of Internationale Nederlanden (U.S.) Capital Corporation, (iv) shares of Common Stock issuable under the Common Stock Purchase [5] warrants, dated as of November 2, 1994 and September 18, 1996. respectively, of the Company in favor of The Provident Bank, (v) shares of Common Stock issuable under the Senior Subordinate Loan and Warrant Purchase Agreement, dated October 15, 1991, as amended, among-Banc One Capital Partners Corporation, the Company and certain of its Subsidiaries, (vi) shares of Common Stock issuable upon conversion or exercise of the Company's convertible preferred stock and warrants outstanding on the Closing Date and (vii) Common Stock issued to or issuable upon conversion, exercise of options to directors, officers, employees or consultants of the Company, provided that the aggregate amount of all such Common Stock shall not exceed 17.05% of the Common Stock outstanding on a Fully Diluted basis as of the Closing Date [6]. "Appraised Value" shall mean, in respect of any share of Common Stock as of any date herein specified, (y) the price that would be paid for the entire common equity interest in the Company on a going concern basis in a single arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), using valuation techniques then prevailing in the securities industry and always determined in accordance with the valuation procedures set forth in Section 12, and assuming full disclosure and understanding of all relevant information and a reasonable period of time for effectuating such sale, divided by (z) the number of shares of Common Stock outstanding on a Fully Diluted basis. For purposes of determining the Appraised Value, (i) the exercise price of options or warrants to acquire Common Stock which are deemed to have been exercised for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis shall be deemed to have been received by the Company, (ii) the liquidation preference or indebtedness, as the case may be, represented by securities which are deemed exercised for or converted into Common Stock for the purpose of determining the number of shares of Common Stock outstanding on a Fully Diluted basis, (iii) any contract limitation in respect of the shares of Common Stock, including their transfer, voting and other rights and (iv) any illiquidity arising by contract law in respect of the shares of Common Stock and any voting rights or control rights amongst the shareholders of the Company shall be deemed to have been eliminated or cancelled. 3 "Business Day" shall mean any day that is not a Saturday or a Sunday or a day on which commercial banks are required or authorized to be closed in the City of New York. "Closing Date" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Common Stock" shall mean (except where the context otherwise indicates) the common stock, without par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Company" shall have the meaning set forth in the first paragraph hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Credit Agreement" shall mean that certain Amended and Restated Credit Agreement, dated as of (7] September 18, 1996 between the Company, the Subsidiary Guarantors named therein, the Lenders named therein, The Provident Bank (as Cash Management Agent) and Internationale Nederlanden (U.S.) Capital Corporation (as Agent). "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) net book value per share of Common Stock as determined by reference to the Company's financial statements for the most recently ended fiscal quarter, or (ii) a valuation per share of Common Stock in an amount equal to (y) the product of (A) [5.67] times (B) the Company's EBITDA less Capital Expenditures (each as defined in the Electra Agreement) permitted under the Electra Agreement, in each event for the twelve month period preceding the most recently ended fiscal quarter, with such product reduced by (z) principal amounts outstanding under the Credit Agreement and the Electra Agreement or (iii) the Appraised Value per share of Common Stock. "Current Warrant Price" shall mean, in respect of any share of Common Stock on any date herein specified, the price at 4 which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Effective Date" shall mean the Closing Date. "Electra Agreement" shall mean that certain Securities Purchase Agreement, dated as of November 2, 1994, by and among the Company, Electra Investment Trust P.L.C. and Electra Associates, Inc. "Exercise Date" shall have the meaning set forth in Section 2.2 hereof. "Expiration Date"-shall mean December 31, 2006. "Fully Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of this Warrant increased by all common equivalent shares issuable at any time pursuant to any stock options, warrants, convertible securities, and any other security or instrument that could result in additional common shares being issued at any time in the future, outstanding on such date. "QAAP" shall mean generally accepted accounting principles as 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 statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Holder" shall have the meaning set forth in the first paragraph hereof. "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "Other Property" shall have the meaning set forth in Section 4.8. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, corporation, limited liability organization, association, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Private Financing" shall have the meaning ascribed to such term in the Securities Purchase Agreement. 5 "Private Financing Price" shall mean the effective price per share of Common Stock received by the Company in connection with a Private Financing, which Private Financing Price shall be equal to the sum of the aggregate value, at the date of closing, of equity invested pursuant to such Private Financing divided by the sum of the aggregate number of shares of Common Stock issued on such closing date plus the number of shares of Common Stock issuable upon the exercise or exchange of Convertible Securities issued in connection with such Private Financing. "RPO Price" shall mean the effective price per share of Common Stock received by the Company in connection with a Registered Public Offering,-whether the consideration for such shares is paid in cash or otherwise. "Registered Public Offering" shall have the meaning ascribed to such term in the Securities Purchase Agreement. "Securities Purchase Agreement" shall mean that certain Securities Purchase Agreement, dated as of September [8] 18, 1996, by and among the Company, Nassau Capital, NAS Partners I L.L.C. [9] and Electra Investment Trust P.L.C. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Warrant" or "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination, or in exchange or substitution therefor. "Warrant Value" shall have the meaning set forth in Section 2.1. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.2, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock received by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1. WARRANT VALUE. The number of shares for which this Warrant shall be exercisable (the "WARRANT VALUE") shall be determined in accordance with the following, subject to adjustment as provided in Section 4 hereof: 6 (a) if as of any Exercise Date no Registered Public Offering shall have occurred, the Warrant Value shall be [11] 57,704 shares; (b) if one or more Private Financings shall have occurred prior to any Exercise Date and no Registered Public Offering shall have occurred, the Warrant Value on such Exercise Date shall be the greater of (i) [12] 57,704 shares or (ii) the number of shares determined pursuant to the following formula: [13] $1 million -------------------------------------- [14] - 250,000 shares; or 80% of the lowest Private Financing Price (c) if one or more Registered Public Offerings shall have occurred prior to any Exercise Date, the Warrant Value on such Exercise Date shall be the greater of (i) [15] 57,704 shares or (ii) the number of shares determined pursuant to the following formula: [16] $1 million ------------------------------ [17] - 250,000 shares; or 80% of the lowest RPO Price 2.2. MANNER OF EXERCISE. From and after the date hereof, and until 5:00 P.M. New York time on the Expiration Date, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office at 2201 Rosecrans Avenue, El Segundo, California 90245, Attention: President, and also at 155 Montrose West Avenue, Suite 210, Copley, Ohio 44321, Attention: Chief Executive Officer, or at the office or agency designated by the Company pursuant to Section 14.7, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) the Holder's check in payment of the Warrant Price and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. 7 This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check and this Warrant, is received by the Company as described above and all taxes, if any, required to be paid prior to the issuance of such shares have been paid pursuant to Section 2.2 (the "Exercise Date"). If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. 2.3. PAYMENT OF TAXES. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, and the Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 2.4. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.5. CONTINUED VALIDITV. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the 1933 Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 10, 11 and 14 of this Warrant. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 8 3. TRANSFER, DIVISION AND COMBINATION 3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.2 or the office or agency designated by the Company pursuant to Section 14.7, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation thereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder or its agent or attorney. Subject to Section 3.1 and Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. EXPENSES. The Company shall prepare, issue and deliver the new Warrant or Warrants and pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such Warrants, unless such taxes or charges are income taxes or otherwise imposed upon income of the Holder. 3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the Company shall: 9 (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in or to receive any other distribution of Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the occurrence of such event, and (ii) the Current Warrant Price shall be adjusted to equal the product of (A) the Current Warrant Price prior to the occurrence of such event multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment and the denominator of which is the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash (other than a regular cash dividend payable out of surplus or net profits legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company), (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), or (c) any warrants, options or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or Additional Shares of Common Stock), then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and the denominator of which shall be such Current Market 10 Price per share of Common Stock minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined pursuant to Section 4.7(a), including as to an opinion from an investment banking firm) of any and all such evidences of indebtedness, shares of stock, other than securities or property or warrants or other subscription or purchase rights so distributable; and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment and the denominator of which shall be the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price at the time the Additional Shares of Common Stock are issued, then (i) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be reduced to a price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale; and (ii) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of (A) the Current Warrant Price in effect immediately prior to such issue or sale multiplied by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale, and dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (i) above. (b) If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Market Price at the time the Additional Shares of Common Stock are issued, then (i) the number of shares of Common Stock for 11 which this Warrant is exercisable shall be adjusted to equal the product of (A) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale multiplied by (B) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares which the aggregate offering price of the total number of such Additional Shares of Common Stock would purchase at the then Current Market Price; and (ii) the Current Warrant Price as to the number of shares for which this Warrant is exercisable prior to such adjustment shall be adjusted by multiplying (A) such Current Warrant Price by (5) a fraction, the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and the denominator of which shall be the number of shares of Common Stock for which this Warrant is exercisable immediately after such issue or sale. (c) If at any time the Company (except as hereinafter provided) shall issue or sell any Additional Shares of Common Stock, in exchange for consideration in an amount per Additional Share of Common Stock which is less than the Current Warrant Price and the Current Market Price at the time the Additional Shares of Common Stock are issued, the adjustment required under this Section 4.3 shall be made in accordance with the formula in paragraph (a) or (b) above which results in the lower Current Warrant Price following such adjustment. The provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or Section 4.2. No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the 12 exercise of such warrants, options or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Warrant Price or the Current Market Price in effect immediately prior to such issue or sale, then the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such warrants, options or other rights. No further adjustment of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants, options or other rights or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Current Warrant Price or Current Market Price in effect immediately prior to the time of such issue or sale, then the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of Additional Shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No adjustment of the number of shares for which this Warrant is exercisable and the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights pursuant to Section 4.4. No further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant, option or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price have been or are to be made pursuant to other provisions of 13 Section 4, no further adjustments of the number of Shares for which this Warrant is exercisable and the Current Warrant Price shall be made by reason of such issue or sale. 4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and of the Current Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, options, rights or Convertible Securities, such warrants, options or rights, or the right of conversion or exchange of such Convertible Securities, shall expire, and all or a portion of such warrants, options or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants, options or rights or Convertible Securities on the basis of (a) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants, options or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (b) treating any such warrants, options or rights or any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such warrants, options or rights or other Convertible Securities, whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. 4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price provided for in this Section 4: (a) COMPUTATION OF CONSIDERATION. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, 14 or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants, options or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants, options or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights plus the additional consideration payable to the Company upon exercise of such warrants, options or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants, options or other rights to subscribe for or purchase of such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any consideration, such determination shall, if requested by the Holder, be supported by an opinion of an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, by holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 15 (b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a divided or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) ESCROW OF WARRANT STOCK. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any Additional Shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. 16 (f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Holder, and any dispute shall be resolved by an investment banking firm selected by the Company and reasonably acceptable to such Holder (or, if more than one Warrant is outstanding, to holders of a majority of Warrant Stock issuable upon exercise of the Warrants). 4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Common Stock of the Company other than a subdivision, combination or exchange otherwise provided for herein), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every term and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereof, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either 17 immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive reorganizations, reclassification, mergers, consolidations or disposition of assets. 4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock which gives rise to antidilution adjustments under any option, warrant, convertible security or other right to acquire Common Stock, whether outstanding at the Closing Date or hereafter issued and together with any agreements related thereto, but excluding antidilution or other adjustment rights with respect to the Banc One Warrant (as defined in the Electra Agreement) and the Warrants, then the Company will promptly make proportional, equitable and corresponding adjustments in the number of shares of Common Stock issuable upon exercise of the Warrants to protect the holders thereof against dilution as a result of such events. 4.10. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time close its stock transfer books or warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 5. NOTICES TO WARRANT HOLDERS 5.1. NOTICE OF ADJUSTMENTS. (a) Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and specifying the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 14.2. The Company shall keep at its office or agency designated pursuant to Section 14.7 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder thereof. 18 5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY The Company shall at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding warrants. The Company covenants that all shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 19 If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith, as expeditiously as possible and at its own expense, endeavor to cause such shares to be duly registered or qualified, as the case may be. 8. PUT RIGHTS The Holder shall have the right to require the Company to repurchase all or any portion of the Warrants held by the Holder upon the terms and as provided in Section 9.3 of the Securities Purchase Agreement. 9. RESTRICTIONS ON TRANSFER The Warrants and the Warrant Stock may not be transferred or assigned before satisfaction of the conditions specified in this Section 9, which are intended to ensure compliance with the provisions of the 1933 Act with respect to the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 9.2. NOTICE OF PROPOSED TRANSFERS: REQUESTS FOR REGISTRATION. Prior to any Transfer of any Warrant, the holder of such Warrant shall give five days' prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, including a description of the manner and circumstances of the proposed Transfer and, if requested by the Company, an opinion from counsel to such holder that the proposed Transfer of such Warrant may be effected without registration under the 1933 Act. After delivery of the Transfer Notice, the holder shall be entitled to Transfer such Warrant in accordance with the terms of the Transfer Notice. Each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1, unless such legend is not required in order to ensure compliance with the 1933 Act. 20 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it (it being understood and agreed that the written agreement of [18] EIT and subsequent institutional transferees, if any, shall be sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor in replacement. 11. FINANCIAL AND BUSINESS INFORMATION The Company will deliver or cause to be delivered to each Holder, as provided in Section 7.1 of the Securities Purchase Agreement, certain financial information, financial analyses, notices, reports, statements and certificates, all to the extent and in the manner provided therein. 12. APPRAISAL The determination of Appraised Value shall be a determination (which shall be final and binding on the parties) made (i) by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) within thirty (30) days following the event requiring such determination or (ii) in the absence of such an agreement, by an Appraiser (as defined below) selected as set forth below. If required, an Appraiser shall be selected within ten (10) days following the expiration of the 30-day period referred to above, either by agreement among the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) or, in the absence of such agreement, by lot from a list of four potential Appraisers remaining after the Company nominates three, the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) nominates three, and each side eliminates one potential Appraiser. The Appraiser shall be instructed by the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants) to make its determination within thirty (30) days of its selection. All fees and expenses of an Appraiser selected hereunder shall be borne solely by the Company. As used herein, "Appraiser" shall mean a nationally recognized investment banking firm. 13. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no 21 enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 14. MISCELLANEOUS 14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the books of the Company maintained for such purpose; (b) If to the Company at: DeCrane Aircraft Holdings. Inc. 2201 Rosecrans Avenue El Segundo, California 90245 Attention: President DeCrane Aircraft Holdings. Inc. 155 Montrose West Ave., Suite 210 Copley, Ohio 44321 Attention: Chief Executive Officer or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been postmarked in the United States mail. 22 14.3. VOTING. To the extent permitted by applicable law, the Warrants shall entitle the Holder to vote with the Common Stock of the Company that number of votes equal to the number of shares of Common Stock issuable from time to time upon exercise of this Warrant on any matters upon which the holders of Common Stock are entitled to vote; provided, however, that solely for purposes of this Section 14.3, the Effective Date shall be deemed to be the date of issue of this Warrant. 14.4. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (i) the Holder's exercise of this Warrant and/or ownership of any shares of Warrant Stock issued in connection therewith, or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder's gross negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. 14.5. REMEDIES. Each holder of this Warrant and any Warrant Stock issuable upon exercise of this Warrant, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 8 of this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of Section 8 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 14.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of [19] EIT or any other holder hereof. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder. 14.7. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 23 14.8. INFORMATION. The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably requested by such holder to comply with any filings or information reporting forms presently or hereafter required as a condition to the availability of an exemption from the 1933 Act for the sale of any Warrant or Warrant Stock. 14.9. AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder (or, if there is more than one Warrant outstanding, to holders of a majority of the Warrant Stock issuable upon exercise of the Warrants). 14.10. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 14.11. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 14.12. GOVERNING LAW. This Warrant shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary. Date of Issuance: September [20] 18, 1996 DeCRANE AIRCRAFT HOLDINGS, INC. By: _______________________________ Name: Title: EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ________________ shares of Common Stock of DeCrane Aircraft Holdings, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to ________________ whose address is _____________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. Dated: ______________________ ___________________________________ (Name of Registered Owner) ___________________________________ (Signature of Registered Owner) ___________________________________ (Street Address) ___________________________________ (City) (State) (Zip Code) NOTE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or any change whatsoever. EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Number of Shares Name and Address of Assignee of Common Stock - ---------------------------- ----------------- and does hereby irrevocably constitute and appoint ____________ attorney-in-fact to register such transfer on the books of Decrane Aircraft Holdings, Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ________________________ _______________________________ (Registered Owner) NOTE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or any change whatsoever. ------------------------------- DELETIONS ----------------------------------- [1] __ [2] Warrant [3] Warrant [4] or (viii) shares of Common Stock issuable [in connection with the senior debt financing portion of the ADS asset purchase] [5] November 2, 1994, [6] ___ [7] , [8] and Electra Associates, Inc. [9] _________________ [l0] ________________ [11] [$3 million] - 750,000 [12) ____________ [13] [$3 million] - 750,000 [14] __ [15] ______________ [16] 7 [17] 7 [18] 14 [19] 15 [20] 17 -iii- EX-10.31 31 EXHIBIT 10.31 - -------------------------------------------------------------------------------- SHARE PURCHASE AGREEMENT Among DeCRANE AIRCRAFT HOLDINGS, INC. and THE SEVERAL PURCHASERS NAMED IN ANNEX I HERETO Dated as of November 2, 1994 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I THE SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.01. Purchase and Sale of Shares . . . . . . . . . . 1 SECTION 1.02. Closing Date. . . . . . . . . . . . . . . . . . 1 ARTICLE 11 REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2.01. Organization, Qualifications and Corporate Power . . . . . . . . . . . . . . 2 SECTION 2.02. Authorization of Agreement, Etc.. . . . . . . . . . . . . . . . . . . . . . 3 Section 2.03. Validity. . . . . . . . . . . . . . . . . . . . 3 Section 2.04. Capital Stock . . . . . . . . . . . . . . . . . 3 Section 2.05. Financial Statements. . . . . . . . . . . . . . 6 Section 2.06. Offering of the Shares. . . . . . . . . . . . . 6 Section 2.07. Governmental Approvals. . . . . . . . . . . . . 6 Section 2.08. Disclosure. . . . . . . . . . . . . . . . . . . 7 Section 2.09. Litigation. . . . . . . . . . . . . . . . . . . 7 Section 2.10. Performance . . . . . . . . . . . . . . . . . . 7 Section 2.11. Title to Assets . . . . . . . . . . . . . . . . 7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. . . . . . . 8 SECTION 3.01. Investment Representations. . . . . . . . . . . 8 ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AND THE COMPANY. . . . . . . . . . . . . . . . . . 8 SECTION 4.01. Conditions to the Obligations of the Purchasers at Closing. . . . . . . . . . 8 SECTION 4.02. Conditions to the Obligations of the Company at the Closing. . . . . . . . . . . 9 ARTICLE V MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 5.01. Expenses. . . . . . . . . . . . . . . . . . . . 10 SECTION 5.02. Survival of Agreements. . . . . . . . . . . . . 10 SECTION 5.03. Brokerage . . . . . . . . . . . . . . . . . . . 10 SECTION 5.04. Parties in Interest . . . . . . . . . . . . . . 11 SECTION 5.05. Covenants Concerning Corporate Opportunity . . . . . . . . . . . . . . . . . . 11 SECTION 5.06. [Intentionally Deleted] . . . . . . . . . . . . 11 SECTION 5.07. Notices . . . . . . . . . . . . . . . . . . . . 11 SECTION 5.08. Governing Law . . . . . . . . . . . . . . . . . 12 SECTION 5.09. Entire Agreement; Amendment . . . . . . . . . . 12 SECTION 5.10. Counterparts. . . . . . . . . . . . . . . . . . 12 SECTION 5.11. Descriptive Headings. . . . . . . . . . . . . . 12 INDEX TO ANNEXES, EXHIBITS AND SCHEDULES Item Description - ---- ----------- ANNEXES Annex I Names, Addresses and Capital Contributions of Purchasers EXHIBITS Exhibit 4.01(d) Second Amended and Restated Registration Rights Agreement Exhibit 4.01(e) Second Amended and Restated Shareholders Agreement Exhibit 4.01(f) Amended and Restated Articles of Incorporation SCHEDULES Schedule 2.04 Capital Stock Matters Schedule 2.07 Governmental Consents Schedule 2.09 Litigation Schedule 2.11 Title to Assets -ii- THIS SHARE PURCHASE AGREEMENT (this "Agreement"), dated as of November 2, 1994, is made by and among DECRANE AIRCRAFT HOLDINGS, INC., an Ohio corporation (the "Company"), and the several Purchasers named in Annex I hereto (each individually a "Purchaser" and collectively the "Purchasers"). PRELIMINARY STATEMENTS: A. The Company wishes to issue to the Purchasers, severally and not jointly, an aggregate of 271,471 Series C Convertible Preferred Shares, without par value (the "Shares"), on and subject to the terms and conditions contained herein. B. The Purchasers, severally and not jointly, wish to purchase, and exercise certain rights to receive, the Shares, all on the terms and subject to the conditions hereinafter set forth. AGREEMENT: ARTICLE I THE SHARES SECTION 1.01. PURCHASE AND SALE OF SHARES. (a) On the Closing Date (as hereinafter defined) the Company shall issue and sell to each Purchaser, and each Purchaser shall purchase from the Company, the number of Shares set forth opposite the name of such Purchaser under the caption "Series C Convertible Preferred Shares to Be Purchased" on Annex I hereto at a purchase price of $1.50 per Share, and the Company shall issue and deliver to each Purchaser a share certificate or certificates in definitive form, registered in the name of the Purchaser, evidencing the Shares being purchased by it hereunder. (b) As payment in full for the Shares being purchased by it hereunder, and against delivery of the certificate or certificates therefor as aforesaid, each Purchaser shall deliver to the Company on the Closing Date a certified or official bank check payable to the order of the Company in the amount set forth opposite the name of such Purchaser under the caption "Cash Amount to Be Paid on the Closing Date" on Annex I hereto, or shall transfer such sum to the account of the Company by wire transfer. SECTION 1.02. CLOSING DATE. The closing of the sale and purchase of the Shares (the "Closing") shall take place at the offices of Mayer, Brown & Platt, 787 7th Avenue, New York, N.Y. 10019, on November 2, 1994 or on such other date as may be -1- mutually agreed upon by the Purchasers and the Company (such date of closing being herein called the "Closing Date"). ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to, and agrees with, the Purchasers' as follows: SECTION 2.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. (a) (i) The Company, and (ii) Tri-Star Holdings, Inc., an Ohio corporation ("TSH"), Tri-Star Electronics International, Inc., an Ohio corporation ("TSE"), Cory Holdings, Inc., an Ohio corporation ("CHI"), Tri-Star Technologies, Inc., an Ohio corporation ("Tech"), Unidec, S.A., a Swiss corporation ("Unidec"), Cory Components, Inc., a California corporation ("CCI"), Hollingshead International, Inc., a California corporation ("HII"), and Hollingshead International Limited, a private company incorporated in England ("Limited") (collectively, the "Subsidiaries"), are corporations duly incorporated, validly existing and in good standing under the laws of the jurisdictions of their respective incorporations. Tri-Star Technologies, a California general partnership ("TST [caad 214]Partnership") and together with the Subsidiaries, the "Affiliates"), is duly formed and validly existing under the laws of the State of California. Each of the Affiliates is duly licensed or qualified to do business as a foreign corporation or partnership, as the case may be, and is in good standing in each other jurisdiction in which, on the date hereof, it owns or leases any real property or in which the nature of business transacted by it makes such licensing or qualification necessary and where the failure to be so licensed or qualified would have a material adverse effect on the operations or financial condition of the Company or the Affiliate, as the case may be (except that no representation or warranty is made with respect to the qualification or good standing of Unidec or Limited). The Company and each of the Affiliates has the corporate or partnership, as the case may be, power and authority to own and hold its respective properties and to carry on its respective businesses as currently conducted, and, with respect to the Company, to execute, deliver and perform this Agreement and the other agreements and transactions contemplated hereby, and to issue, sell and deliver the Shares and, upon conversion thereof, to issue and deliver the number of the Company's Common Shares, without par value (the "Common Shares"), issuable upon such conversion (the "Conversion Shares"). (b) Except for the Affiliates, the Company does not own of record or beneficially, directly or indirectly, (i) any shares of outstanding capital stock or securities convertible -2- into capital stock of any other corporation, or (ii) any participating interest in any partnership, joint venture or other noncorporate business enterprise. SECTION 2.02. AUTHORIZATION OF AGREEMENT, ETC. (a) The execution, delivery and performance by the Company of this Agreement and the other agreements and transactions contemplated hereby, and the issuance, sale and delivery of the Shares and the delivery of the Conversion Shares upon conversion of the Shares have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Amended and Restated Articles of Incorporation ("Articles of Incorporation") or Code of Regulations of the Company, or any provision of any indenture, agreement or other instrument by which the Company or any of its properties or assets is bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) The Shares have been duly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued and outstanding, fully paid and nonassessable. The Conversion Shares have been duly reserved for issuance upon conversion of the Shares and, when so issued, will be duly authorized, validly issued and outstanding, fully paid and non- assessable Common Shares. Neither the issuance, sale and delivery of the Shares nor the issuance and delivery of the Conversion Shares upon conversion thereof are subject to any preemptive rights of shareholders of the Company or to any right of first refusal or other similar right in favor of any person. SECTION 2.03. VALIDITY. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and other similar laws and principles of equity affecting creditors' rights and remedies generally. SECTION 2.04. CAPITAL STOCK. After giving effect to the filing of the Articles of Incorporation referred to in Section 4.01(f), and assuming the consummation of the transactions contemplated herein, in the Credit Agreement (as defined in that certain Securities Purchase Agreement dated the date hereof among the Company, the Affiliates, Electra Associates, Inc., a Delaware corporation ("Electra") and Electra Investment Trust P.L.C., a corporation formed under the laws of England ("EIT") (the "Loan Agreement")), in the Loan Agreement, -3- and in that certain Stock Purchase Agreement dated as of the date hereof between Key Equity Capital Corporation ("KEC"), EIT and Electra (the "Electra Agreement"): (a) The authorized capital stock of the Company consists of Eight Million (8,000,000) Common Shares, without par value, of which Two Hundred Ninety-Three Thousand Eight Hundred Forty (293,840) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto; One Hundred Sixty-Seven Thousand Seven Hundred Two (167,702) shares of Series A Convertible Preferred Shares, all of which are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto; One Million Six Hundred Fifteen Thousand Two Hundred Two (1,615,202) shares of Series B Convertible Preferred Shares, of which One Million Five Hundred Eighty-Three Thousand Five Hundred Thirty-Two (1,583,532) are issued and outstanding and held of record and beneficially as set forth on Schedule 2.04 hereto; and Three Million (3,000,000) shares of Series C Convertible Preferred Shares, Two Million Two Hundred Seventy One Thousand Four Hundred and Seventy-One (2,271,471) of which are issued and outstanding and held of record and beneficially as set forth on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (b) The authorized capital stock of TSH consists of Seven Hundred Fifty (750) Common Shares, without par value, of which One Hundred (100) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (c) The authorized capital stock of TSE consists of Seven Hundred Fifty (750) Common Shares, without par value, of which One Hundred (100) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (d) The authorized capital stock of TST consists of Seven Hundred Fifty (750) Common Shares, without par value, of which One Hundred (100) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (e) The authorized capital stock of CHI consists of Seven Hundred Fifty (750) Common Shares, without par value, of which One Hundred (100) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. -4- (f) The authorized capital stock of CCI consists of One Hundred Thousand (100,000) Common Shares, without par value, of which One Thousand (1,000) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (g) The authorized capital stock of Unidec consists of Two Hundred (200) fully paid-in bearer shares of par value, of which Two Hundred (200) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (h) Schedule 2.04 hereto describes the percentage ownership interest of each of the partners of TST Partnership in TST Partnership. (i) The authorized capital stock of HII consists of Twenty-Five Thousand (25,000) Common Shares, without par value, of which Three Thousand (3,000) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (j) The authorized capital stock of Limited consists of Fifty Thousand (50,000) ordinary one-pound shares, of which One Thousand (1,000) shares are issued and outstanding and held of record and beneficially as shown on Schedule 2.04 hereto. All of such issued and outstanding capital stock is fully paid and nonassessable. (k) Other than as disclosed on Schedule 2.04 hereto, there are no outstanding subscriptions, options, warrants, calls, rights (including preemptive rights) or other agreements or commitments of any nature relating to any capital stock of the Company or any Affiliate. Except as disclosed in Schedule 2.04 or set forth in the Loan Agreement, the Articles of Incorporation, or the Shareholders Agreement (as defined below) (i) no subscription, warrant, option, convertible security or other right, contingent or otherwise, to purchase or acquire any shares of any class of capital stock of the Company or any Affiliate is authorized or outstanding, (ii) there is not any commitment of the Company to issue any shares, warrants, options or other such rights or to distribute to holders of any class of its capital stock any evidence of indebtedness or assets, and (iii) neither the Company nor any Affiliate has any obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or to make any other distribution in respect thereof. -5- SECTION 2.05. FINANCIAL STATEMENTS. The Company has delivered to the Purchasers the audited balance sheets of the Company, as of December 31, 1993, and audited statements of income and cash flows for the Company for the fiscal year ended December 31, 1993; the unaudited balance sheets of the Company, Tri-Star Electronics, Inc., an Ohio corporation ("Tri-Star"), HII, CCI, TST Partnership and the Company as of December 31, 1993, and statements of income and cash flows for Tri-Star, CCI, TST Partnership and the Company for the eight-month period ended August 31, 1994; and the audited balance sheet of Unidec as of December 31, 1993 and a statement of income and cash flow for Unidec for the eight-month period ended August 31, 1994. Such financial statements are true and correct in all material respects and fairly and accurately present the results of the operations of the entities to which they relate as of the dates and for the respective periods indicated therein. None of the Company, TST Partnership, CCI or Unidec has any material contingent liabilities, liabilities for taxes, material forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments not previously disclosed in writing to the Purchasers. There has been no material adverse change in the business, condition (financial or otherwise), operations, prospects, or properties of the Company or TST Partnership, CCI or Unidec since the effective date of the most recent financial statements referred to in this Section 2.05, and there has been no material adverse change in the business condition (financial or otherwise); operations, prospects or properties of TSH, TSE, CHI or Tech since the date of their respective incorporations. SECTION 2.06. OFFERING OF THE SHARES. Neither the Company nor any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Shares or any similar security of the Company has offered the Shares or any such security for sale to, or solicited any offers to buy the Shares or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any person or persons other than the Purchasers, and neither the Company nor any person acting on its behalf has taken or will take any action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with the Shares under the Securities Act of 1933 (the "Securities Act") or the rules and regulations of the Securities and Exchange Commission thereunder) which might subject the offering, issuance or sale of the Shares to the registration provisions of the Securities Act. SECTION 2.07. GOVERNMENTAL APPROVALS. Assuming the correctness and completeness of all representations and warranties made on behalf of the Purchasers herein, to the best of the Company's knowledge, no registration or filing with, or consent or approval of, or other action by, any federal, state or -6- other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance of this Agreement or the issuance, sale and delivery of the Shares or the Conversion Shares, except as disclosed on Schedule 2.07 hereto. SECTION 2.08. DISCLOSURE. Nothing contained in this Agreement nor any Schedule annexed hereto, nor any certificate or other instrument referred to herein and furnished to the Purchasers by the Company, or any other materials delivered to the Purchasers in connection with the transactions contemplated herein, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, in the light of the circumstances under which they were made, not misleading. SECTION 2.09. LITIGATION. Except as set forth on Schedule 2.09 hereto, in the Loan Agreement or in the Credit Agreement (or the schedules, exhibits or attachments to the Loan Agreement or the Credit Agreement (collectively, the "Attachments")), there are no actions, suits, proceedings, orders, investigations or claims pending or, to the best of the Company's knowledge, threatened against or affecting the Company, any Affiliate, or any of their respective properties at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality that would materially adversely affect the business or operations of the Company or any Affiliate. SECTION 2.10. PERFORMANCE. To the best of the Company's knowledge, the Company and each of the Affiliates have performed all material obligations required to be performed by them and are not in default in any material respect under or in breach in any material respect under any contract, agreement or instrument to which the Company or any Affiliate is a party or is subject, and no event has occurred which with the passage of time or the giving of notice or both would result in a material default, breach or event of noncompliance under any such contract, agreement or instrument. SECTION 2.11. TITLE TO ASSETS. Except as set forth on Schedule 2.11 hereto, the Company and each Affiliate have good and marketable title to, or valid leasehold interests in, their respective assets free and clear of all liens, security interests, charges and encumbrances, except for (i) liens for taxes not yet due and payable, (ii) reservations, exceptions, encroachments, easements, rights-of-way, covenants and conditions and restrictions affecting any real property, and (iii) deposits under workmen's compensation, unemployment insurance, social security and other similar laws. Notwithstanding anything to the contrary contained in this Article II, the representations and warranties made by the -7- Company with respect to Unidec, Tech and CCI are made and limited to the actual knowledge of the Company with respect to the subject matter thereof. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS SECTION 3.01. INVESTMENT REPRESENTATIONS. Each Purchaser represents and warrants to the Company that it is acquiring the Shares for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof. Each Purchaser further represents that it understands that (i) the Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, (ii) the Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Shares will bear a legend to such effect and (iv) the Company will make a notation on its transfer books to such effect. Each Purchaser further understands that the exemption from registration afforded by Rule 144 under the Securities Act depends on the satisfaction of various conditions and that, if applicable, Rule 144 affords the basis of sales of the Shares in limited amounts under certain conditions. Each Purchaser (i) acknowledges that it has had a full opportunity to request from the Company and to review and has received all information which it deems relevant in making a decision to purchase the Shares being purchased by it hereunder, (ii) will comply with the restrictions on transferability of the Shares contained in the Registration Rights Agreement (as defined below) and the Shareholders Agreement (as defined below), (iii) is an accredited investor (as defined in the Securities Act) and has the experience in making investments to make its own investment decision, and (iv) is able to withstand the total loss of its investment in the Company. ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AND THE COMPANY SECTION 4.01. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AT CLOSING. The obligations of each Purchaser to perform its obligations hereunder on the Closing Date are subject to the satisfaction, on or before such date, of the following conditions: -8- (a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The representations and warranties contained in Article II hereof shall be true and correct on and as of the Closing Date. (b) PERFORMANCE. The Company shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the Closing Date. (c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in form and substance to the Purchasers and their special counsel, and the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (d) REGISTRATION RIGHTS AGREEMENT. Each other Purchaser, DeCrane, Banc One Capital Partners Corporation, a Texas Corporation ("Banc One"), Brantley, Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("ING"), The Provident Bank, a banking association organized under the laws of the State of Ohio ("Provident") and the Company shall have executed and delivered the Second Amended and Restated Registration Rights Agreement in the form attached hereto as Exhibit 4.01(d) (the "Registration Rights Agreement"). (e) SHAREHOLDERS AGREEMENT. Each other Purchaser, DeCrane, Banc One, Brantley, ING, Provident and the Company shall have executed and delivered the Second Amended and Restated Shareholders Agreement in the form attached hereto as Exhibit 4.01(e) (the "Shareholders Agreement"). (f) AMENDED AND RESTATED ARTICLES OF INCORPORATION. The Company shall have filed with the Secretary of State of the State of Ohio the Amended and Restated Articles of Incorporation in the form of Exhibit 4.01(f) attached hereto. (g) CLOSING OF TRANSACTIONS. The closing of the transactions contemplated by the Credit Agreement, the Loan Agreement and the Electra Agreement shall have occurred or shall occur simultaneously with the Closing. (h) OPINION OF COUNSEL. The Company shall have delivered to the Purchasers an opinion of counsel satisfactory to the Purchasers and their respective special counsel. All such documents shall be satisfactory in form and substance to the Purchasers and their respective special counsel. -9- SECTION 4.02. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AT THE CLOSING. The obligations of the Company to perform its obligations hereunder on the Closing Date are, at its option, subject to the satisfaction, on or before such date, of the following conditions: (a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The representations and warranties contained in Article III hereof shall be true and correct on and as of the Closing Date. (b) PERFORMANCE. Each Purchaser shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by such Purchaser prior to or at the Closing Date. (c) REGISTRATION RIGHTS AGREEMENT. The Purchasers, DeCrane, Banc One, Brantley, Provident and ING shall have executed and delivered the Registration Rights Agreement. (d) SHAREHOLDERS AGREEMENT. The Purchasers, DeCrane, Banc One, Brantley, Provident and ING and shall have executed and delivered the Shareholders Agreement. (e) CLOSING OF TRANSACTIONS. The closing of the transactions contemplated by the Credit Agreement, the Loan Agreement and the Electra Agreement shall have occurred or shall occur simultaneously with the Closing. ARTICLE V MISCELLANEOUS SECTION 5.01. EXPENSES. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated; provided that all reasonable legal fees and costs of the parties in connection with the transactions contemplated hereby shall be paid by the Company, whether or not such transactions shall be consummated. SECTION 5.02. SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issuance, sale and delivery of the Shares pursuant hereto, and the Conversion Shares upon conversion of the Shares, and all statements contained in any certificate or other instrument delivered by the Company hereunder shall be deemed to constitute representations and warranties made by the Company. -10- SECTION 5.03. BROKERAGE. Each party hereto will indemnify and hold harmless the others against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. SECTION 5.04. PARTIES IN INTEREST. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. SECTION 5.05. COVENANTS CONCERNING CORPORATE OPPORTUNITY. (a) Each Purchaser agrees that, until the first to occur of (i) January 1, 2001, (ii) the date upon which such Purchaser ceases to own any Shares or Conversion Shares, or (iii) an underwritten public offering covering the sale of Common Shares in which net proceeds to the Company are at least $25,000,000.00, such Purchaser shall be obligated to present to the Company, prior to making any commitment or investment on its own behalf, any opportunity for acquisitions, joint ventures or other forms of equity investment in any business or businesses engaged in the "Defined Aviation Business," as such term is defined in paragraph (b) hereof. (b) The term "Defined Aviation Business" shall mean and be limited to (i) the avionics manufacturing business, (ii) the business of maintaining, repairing and/or overhauling aircraft, and (iii) the business of manufacturing secondary hydraulics for the aviation industry. (c) Notwithstanding anything to the contrary in this Section 5.05, a Purchaser shall not be required to present any opportunity to the Company with respect to a Purchaser's stock ownership of less than 10% (on a fully diluted basis) in a privately held or publicly traded corporation, partnership, limited liability company or other business entity engaged in the Defined Aviation Business. SECTION 5.06. [intentionally deleted) SECTION 5.07. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by first-class registered mail, postage prepaid, addressed as follows: (a) if to the Company, at 115 West Montrose Avenue, Suite 210, Copley, Ohio 44321, attention of R. Jack DeCrane; -11- (b) if to any Purchaser, at its address set forth in Annex I hereto; (c) if to any other party hereto, to such party at its address appearing on the stock transfer records of the Company; and (d) if to any subsequent holder of Shares, Conversion Shares, to such holder at its address appearing on the stock transfer records of the Company; or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others, and shall be deemed to have been given upon delivery, if delivered personally, three business days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service. SECTION 5.08. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. SECTION 5.09. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified or amended except in writing and with the consent of (i) the holders of a majority of the outstanding Shares, and (ii) so long as any Purchaser holds any Shares, by each such Purchaser. SECTION 5.10. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 5.11. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. [The remainder of this page is intentionally left blank] * * * * -12- * * * * IN WITNESS WHEREOF, the Company and the Purchasers have executed this Share Purchase Agreement as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ R. Jack DeCrane ----------------------------------- R. Jack DeCrane, Chief Executive Officer ELECTRA INVESTMENT TRUST P.L.C. By: ----------------------------------- Its: ----------------------------------- ELECTRA ASSOCIATES, INC. By: ----------------------------------- Its: ----------------------------------- DSV PARTNERS, IV By: DSV Management Ltd., its general partner By: /s/James R. Bergman --------------------------------- James R. Bergman, General Partner * * * * IN WITNESS WHEREOF, the Company and the Purchasers have executed this Share Purchase Agreement as of the day and year first above written. DeCRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- R. Jack DeCrane, Chief Executive Officer ELECTRA INVESTMENT TRUST P.L.C. By: /s/ H.A.L.H. Mumford ----------------------------------- Its: H.A.L.H. MUMFORD, Director ----------------------------------- DSV PARTNERS, IV By: DSV Management Ltd., its general partner By: -------------------------------- James R. Bergman, General Partner BANC ONE CAPITAL PARTNERS CORPORATION By: -------------------------------- Suzanne Kriscunas, President BRANTLEY VENTURE PARTNERS II, L.P. By: Brantley Venture Management II, L.P., its general partner By: Pinkas Family Partners, L.P., its general partner By: --------------------------------- Raymond J. Rund, general partner KEY EQUITY CAPITAL CORPORATION By: -------------------------------- Raymond A Lancaster, President ----------------------------------- R. JACK DECRANE, in his individual capacity EX-11.1 32 EXHIBIT 11.1 DECRANE AIRCRAFT HOLDINGS, INC. CALCULATION OF EARNINGS PER COMMON SHARE PRO FORMA FOR RECAPITALIZATION
Year Ended Nine Months 31-Dec-95 30-Sep-96 Common shares outstanding at beginning of the year 301,840 301,840 Common stock equivalents 5,368,483 5,368,483 Impact of cheap stock for options, warrants & preferred stock 4,065,938 4,065,938 Treasury stock repurchase (115,177) (115,177) -------------- -------------- Pro forma weighted average number of shares outstanding 9,621,084 9,621,084 Reverse stock split (.28357 for 1) 0.28357 0.28357 -------------- -------------- Pro forma weighted average number of shares outstanding 2,728,251 2,728,251 Net loss (4,003,000) (1,941,000) Pro forma net loss per common share $ (1.47) $ (0.71) -------------- -------------- -------------- --------------
EX-21.1 33 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF THE COMPANY Tri-Star Holdings, Inc., an Ohio corporation Tri-Star Electronics International, Inc., an Ohio corporation Tri-Star Technologies, Inc., an Ohio corporation Cory Holdings, Inc., an Ohio corporation Cory Components, Inc., a California corporation Elsinore Aerospace Services, Inc., a California corporation Elsinore Engineering, Inc., a Selaware corporation Tri-Star Electronic Europe S.A., a Swiss corporation Tri-Star Technologics, Inc., a California general partnership Hollingsead International, Inc., a California corporation Hollingsead International, Ltd., a U.K. corporation Aerospace Display Systems, Inc., a Delaware corporation EX-23.1 34 EXHIBIT 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 reports dated (i) April 9, 1996, relating to the consolidated financial statements of DeCrane Aircraft Holdings, Inc. and (ii) August 2, 1996, relating to the financial statements of Aerospace Display Systems, which appear in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended December 31, 1995 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 such report also included this schedule. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Cleveland, Ohio January 16, 1997 EX-27 35 EXHIBIT 27
5 1000 12-MOS 9-MOS DEC-31-1995 DEC-31-1995 JAN-01-1995 JAN-01-1996 DEC-31-1995 SEP-30-1996 305 81 0 0 9,051 11,112 259 362 14,116 15,801 23,575 27,234 16,887 20,139 9,500 11,047 36,329 54,228 10,992 16,043 0 0 0 0 5,549 13,850 58 62 (7,304) (8,176) 36,329 54,228 55,839 43,059 55,839 43,059 43,463 35,277 65,265 40,506 1,115 381 0 0 3,821 2,821 (2,368) (832) 1,078 265 (3,446) (1,097) 0 0 0 0 0 0 (3,446) (1,097) (1.48) (.72) 0 0 IS COMPUTED ON A PRO FORMA BASIS. SEE NOTE 1 TO THE FINANCIAL STATEMENTS.
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