-----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, JwYVL5nIiJ8n5ceTXiFiCElLY44Olg+yhso//pe38NTuQPExNv2p5TBgNJ/M0rft GrpV07Ck4vCR4rtUP/4OCQ== /in/edgar/work/20000802/0000912057-00-034284/0000912057-00-034284.txt : 20000921 0000912057-00-034284.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-034284 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000630 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECRANE AIRCRAFT HOLDINGS INC CENTRAL INDEX KEY: 0000880765 STANDARD INDUSTRIAL CLASSIFICATION: [3728 ] IRS NUMBER: 341645569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22371 FILM NUMBER: 684464 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 8-K/A 1 a8-ka.txt FORM 8K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K / A (AMENDMENT NO. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 June 30, 2000 Date of Report (Date of earliest event reported) -------------------- DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 333-70365 34-1645569 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 2361 ROSECRANS AVENUE, SUITE 180, EL SEGUNDO, CA 90245 (Address, including zip code, of principal executive offices) (310) 725-9123 (Registrant's telephone number, including area code) -------------------- NOT APPLICABLE (Former address and telephone number of principal executive offices, if changed since last report) -------------------- ================================================================================ EXPLANATORY NOTE On July 13, 2000, DeCrane Aircraft Holdings, Inc. filed a Form 8-K describing our acquisition of ERDA, Inc. on June 30, 2000. At the time of the filing, certain of the financial statements of ERDA compliant with Regulation S-X were not yet available. As a result, the pro forma consolidated financial information required by the Securities Exchange Act of 1934 could not be prepared. The purpose of this Form 8-K / A is to amend our initial filing with respect to the ERDA acquisition and provide the required audited financial statements and pro forma financial information reflecting the acquisition. DOCUMENTS REFERRED TO IN THIS REPORT DeCrane Aircraft has filed documents with the Securities and Exchange Commission that we refer to in this report. The documents we refer to and the information they contain are described below. - - Our Form 10-K for the year ended December 31, 1999. The Form 10-K includes our audited 1999 financial statements and descriptions of companies we acquired during 1999. - - Our Form 10-Q for the three months ended March 31, 2000. The Form 10-Q includes our unaudited financial statements for the three months ended March 31, 2000. - - Our Form 8-K / A (Amendment No. 1) dated December 17, 1999. Exhibit 20.2 of the Form 8-K contains our prospectus dated February 10, 2000 and includes audited financial statements of the companies we acquired during 1999. - - Our Form 8-K and Form 8-K / A (Amendment No. 1) dated May 11, 2000. The Form 8-K's includes information about our May 2000 acquisition of Carl Booth, including its audited financial statements. - - Our Form 8-K dated June 30, 2000. The Form 8-K includes information about our June 2000 acquisition of ERDA, which we are amending, in part, in this Form 8-K / A (Amendment No. 1). You may read and copy any reports, statements or other information we file at the SEC's reference room in Washington D.C. Please call the SEC at (202) 942-8090 for further information on the operation of the reference rooms. You can also request copies of these documents, upon payment of a duplicating fee, by writing to the SEC, or review our SEC filings on the SEC's EDGAR web site, which can be found at http:\\www.sec.gov. You may also write or call us at our corporate office located at 2361 Rosecrans Avenue, Suite 180, El Segundo, California 90245. Our telephone number is (310) 725-9123. ITEM 5. OTHER EVENTS PRIVATE PLACEMENT OF SECURITIES The ERDA acquisition was funded, in part, with $25.0 million of proceeds from the sale of DeCrane Aircraft 16% preferred stock and warrants to purchase 139,257 shares of DeCrane Holdings common stock at $0.01 per share. Documents pertaining to the private placement of these securities are filed as exhibits to this Form 8-K / A (Amendment No. 1). REORGANIZATION Two of our subsidiaries were reorganized as limited liability companies. The certificates of formation and operating agreements are filed as exhibits to this Form 8-K / A (Amendment No. 1). 1 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of businesses acquired. Our Form 8-K filed on July 13, 2000 is hereby amended by deleting the paragraph in Item 7(a) and replacing it with the following: Consolidated financial statements of ERDA, Inc. are attached hereto as follows:
PAGE ---- AUDITED FINANCIAL STATEMENTS Report of Independent Accountants ......................................................................... F-1 Consolidated Balance Sheets as of June 30, 1998 and 1999 .................................................. F-2 Consolidated Statements of Income for the years ended June 30, 1998 and 1999 .............................. F-3 Consolidated Statements of Stockholders' Equity (Deficit) for years ended June 30, 1998 and 1999 .......... F-4 Consolidated Statements of Cash Flows for the years ended June 30, 1998 and 1999 .......................... F-5 Notes to the Consolidated Financial Statements ............................................................ F-6 UNAUDITED INTERIM FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1999 and unaudited March 31, 2000 .............................. F-15 Unaudited Consolidated Statements of Income for the nine months ended March 31, 1999 and 2000 ............. F-16 Unaudited Consolidated Statements of Stockholders' Equity (Deficit) for the nine months ended March 31, 2000 ........................................................................ F-17 Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 1999 and 2000 ......... F-18 Condensed Notes to the Unaudited Consolidated Financial Statements ........................................ F-19
(b) Pro forma financial information. Our Form 8-K filed on July 13, 2000 is hereby amended by deleting the paragraph in Item 7(b) and replacing it with the following: Unaudited pro forma consolidated financial information reflecting our acquisition of ERDA, Inc., including related explanatory notes, are attached hereto as follows:
Page ---------- Basis of Presentation ..................................................................................... P-1 Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2000 ....................................... P-2 Unaudited Pro Forma Consolidated Statement of Operations for the: Year ended December 31, 1999 ............................................................................ P-3 Three months ended March 31, 2000 ....................................................................... P-4 Notes to Unaudited Pro Forma Consolidated Financial Data .................................................. P-5
2 (c) Exhibits. Exhibit No. Exhibit Description ----------- -------------------------------------------------------------- 3.3.1 Certificate of Formation and Certificate of Merger for Aerospace Display Systems, LLC ** 3.3.2 Limited Liability Company Operating Agreement for Aerospace Display Systems, LLC ** 3.19.1 Certificate of Formation and Certificate of Merger for Custom Woodwork & Plastics, LLC ** 3.19.2 Limited Liability Company Operating Agreements for Custom Woodwork & Plastics, LLC ** 3.26.1 Restated Articles of Incorporation of ERDA, Inc. ** 3.26.2 Bylaws of ERDA, Inc. (formerly ERDA Acquisition Co., Inc.) ** 4.6 Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009 ** 4.7 Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock ** 10.1 Securities Purchase Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., DeCrane Holdings Co. and the purchasers named therein ** 10.2 Amended and Restated Investors' Agreement dated as of June 30, 2000 by and among DeCrane Holdings Co., DeCrane Aircraft Holdings, Inc. and the stockholders named therein ** 21.1 List of Subsidiaries of Registrant ** - ---------- * Previously filed ** Filed herewith SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DECRANE AIRCRAFT HOLDINGS, INC. (Registrant) August 2, 2000 By: /s/ RICHARD J. KAPLAN ----------------------------------------- Name: Richard J. Kaplan Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer 3 FINANCIAL STATEMENTS OF BUSINESS ACQUIRED REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors ERDA, Inc. and Subsidiary We have audited the consolidated balance sheets of ERDA, Inc. and Subsidiary as of June 30, 1999 and 1998, and the related consolidated statements of income, stockholders' equity (deficit) and cash flows for the years then ended. 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 in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ERDA, Inc. and Subsidiary as of June 30, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. GRANT THORNTON LLP Appleton, Wisconsin August 18, 1999 F-1 ERDA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, ------------------------ 1998 1999 ----------- ----------- ASSETS Current assets Cash ........................................................................................ $ 64 $ 29 Accounts receivable, net ..................................................................... 2,633 4,938 Inventories .................................................................................. 4,731 5,548 Deferred income taxes ........................................................................ - 133 Other current assets ......................................................................... 76 53 ----------- ----------- Total current assets ....................................................................... 7,504 10,701 Property, plant and equipment, net .............................................................. 3,803 4,301 Other assets, principally intangibles, net ...................................................... 453 2,154 ----------- ----------- Total assets ............................................................................. $ 11,760 $ 17,156 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt ............................................................ $ 645 $ 2,016 Accounts payable.............................................................................. 1,311 1,044 Accrued liabilities .......................................................................... 1,128 1,290 Income taxes payable ......................................................................... - 297 ----------- ----------- Total current liabilities .................................................................. 3,084 4,647 Long-term debt .................................................................................. 6,443 9,215 Deferred income taxes ........................................................................... - 20 Other long-term liabilities ..................................................................... 268 366 ----------- ----------- Commitments and contingencies (Note 12) Stockholders' equity Common stock, no par value, 10,000,000 shares authorized; 5,300,746 shares issued and outstanding at June 30, 1998 and 1999 ........................................... 2,915 2,915 Additional paid-in capital ................................................................... 1,346 1,346 Stock purchase plan notes receivable ......................................................... (191) (191) Accumulated deficit .......................................................................... (2,105) (1,162) ----------- ----------- Total stockholders' equity ................................................................. 1,965 2,908 ----------- ----------- Total liabilities and stockholders' equity ............................................... $ 11,760 $ 17,156 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-2 ERDA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
YEAR ENDED JUNE 30, ------------------------ 1998 1999 ----------- ----------- Sales ........................................................................................... $ 19,881 $ 23,918 Cost of sales ................................................................................... 15,678 18,357 ----------- ----------- Gross profit ............................................................................. 4,203 5,561 ----------- ----------- Operating expenses Selling expenses ............................................................................. 646 913 General and administrative expenses .......................................................... 1,715 2,096 ----------- ----------- Total operating expenses ................................................................... 2,361 3,009 ----------- ----------- Income from operations ................................................................... 1,842 2,552 Other expenses Interest expense ............................................................................. 828 1,053 Minority interest in earnings of subsidiary .................................................. - 28 Other expenses ............................................................................... 73 192 ----------- ----------- Income before provision for income taxes ........................................................ 941 1,279 Provision for income taxes ...................................................................... 1 336 ----------- ----------- Net income ...................................................................................... $ 940 $ 943 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 ERDA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
STOCK COMMON STOCK ADDITIONAL PURCHASE ------------------------ PAID-IN PLAN NOTES ACCUMULATED SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL ----------- ----------- ----------- ----------- ----------- ----------- Balance, July 1, 1997 ...................... 4,689,361 $ 2,406 $ 121 $ (191) $ (3,045) $ (709) Net proceeds from the issuance of common stock ................................... 611,385 509 - - - 509 Proceeds from issuance of 699,383 common stock warrants ................... - - 1,225 - - 1,225 Net income ................................. - - - - 940 940 ----------- ----------- ----------- ----------- ----------- ----------- Balance, June 30, 1998 ..................... 5,300,746 2,915 1,346 (191) (2,105) 1,965 Net income ................................. - - - - 943 943 ----------- ----------- ----------- ----------- ----------- ----------- Balance, June 30, 1999 ..................... 5,300,746 2,915 1,346 (191) (1,162) 2,908 =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 ERDA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED JUNE 30, ------------------------ 1998 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................................................... $ 940 $ 943 Adjustments to reconcile net income to net cash provided by (used for) operating activities Depreciation and amortization ............................................................ 687 881 Minority interest in earnings of subsidiary .............................................. - 28 Deferred income taxes .................................................................... - (113) Loss on sale of property, plant and equipment ............................................ 6 - Changes in assets and liabilities Accounts receivable .................................................................... (105) (2,305) Inventories ............................................................................ (425) 428 Other current assets ................................................................... (38) 23 Accounts payable ....................................................................... (174) (267) Accrued liabilities .................................................................... (1,846) 162 Income taxes payable ................................................................... - 297 Deferred compensation .................................................................. 49 70 ----------- ----------- Cash provided by (used for) operating activities ..................................... (906) 147 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ......................................................................... (883) (897) Purchase of net assets in acquisition ........................................................ - (3,100) Increase in other assets ..................................................................... (10) (86) ----------- ----------- Cash used for investing activities ................................................... (893) (4,083) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt and capital leases ...................................... (2,026) (691) Proceeds from issuance of long-term debt ..................................................... 2,650 4,592 Proceeds from issuance of common stock warrants .............................................. 1,225 - Proceeds from issuance of common stock ....................................................... 359 - Debt issuance costs .......................................................................... (378) - ----------- ----------- Cash provided by financing activities ................................................ 1,830 3,901 ----------- ----------- Net increase (decrease) in cash ................................................................. 31 (35) Cash at beginning of period ..................................................................... 33 64 ----------- ----------- Cash at end of period ........................................................................... $ 64 $ 29 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ERDA, Inc. and subsidiary (the "Company") are integrated engineering and manufacturing companies providing seating and other aids of traveling comfort to business, government and consumer markets throughout the United States and the world. The Company also derives a portion of its revenues from providing subcontracting services to a major medical equipment manufacturer. BASIS OF PRESENTATION The consolidated financial statements include the accounts of ERDA, Inc. and its 80% owned subsidiary, Trident Products, Inc. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the financial statements to conform to the current presentation. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. The estimated service lives used in determining depreciation are: equipment - 3 to 12 years; furniture and fixtures - 3 to 10 years; shop tools - 3 to 10 years; demonstrator models - 5 to 10 years; and building and leasehold improvements - 5 to 40 years. The straight-line method of depreciation is followed for financial statement purposes, while accelerated methods are used for tax purposes. INTANGIBLES Debt issuance costs are being amortized on a straight-line basis over the terms of the related long-term obligations. Goodwill obtained in 1999 as a result of the purchase of the assets of Derlan, Inc. will be amortized on a straight-line basis over 15 years. INCOME TAXES The Company accounts for income taxes on the asset and liability method, as provided by Financial Accounting Standards No. 109. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. F-6 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. REVENUE RECOGNITION Revenue is recognized by the Company when goods are shipped. NOTE 2 - ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS Accounts receivable is net of an allowance for doubtful accounts of $40,000 and $92,000 at June 30, 1998 and 1999, respectively. Sales to customers representing 10% or more of net revenues consist of the following:
JUNE 30, ------------------------- 1998 1999 ------------ ------------ Customer A ................................ 17.6% 24.0% Customer B ................................ 10.9% Less than 10% Customer C ................................ Less than 10% 12.3%
NOTE 3 - INVENTORIES Inventories are comprised of the following (amounts in thousands):
JUNE 30, ------------------------ 1998 1999 ----------- ----------- Raw materials and finished components ..................... $ 3,629 $ 4,299 Work in process ........................................... 772 941 Finished goods ............................................ 330 308 ----------- ----------- Total inventories ...................................... $ 4,731 $ 5,548 =========== ===========
F-7 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment includes the following (amounts in thousands):
JUNE 30, ------------------------ 1998 1999 ----------- ----------- Land ............................................................................................ $ 24 $ 24 Equipment ....................................................................................... 2,890 3,033 Building and leasehold improvements ............................................................. 1,498 1,765 Furniture and fixtures .......................................................................... 1,019 1,639 Demonstrator models ............................................................................. 785 924 Shop tools ...................................................................................... 720 817 ----------- ----------- Total cost ................................................................................... 6,936 8,202 Accumulated depreciation and amortization .................................................... (3,133) (3,901) ----------- ----------- Net property, plant and equipment .......................................................... $ 3,803 $ 4,301 =========== ===========
Depreciation expense amounted to approximately $625,000 and $821,000 for the years ended June 30, 1998 and 1999, respectively. NOTE 5 - OTHER ASSETS Other assets includes the following (amounts in thousands):
JUNE 30, ------------------------ 1998 1999 ----------- ----------- Goodwill ........................................................................................ $ - $ 1,675 Debt issuance costs ............................................................................. 442 491 Other non-amortizable assets .................................................................... 38 124 ----------- ----------- Total cost ................................................................................... 480 2,290 Accumulated amortization ..................................................................... (27) (136) ----------- ----------- Other assets, net .......................................................................... $ 453 $ 2,154 =========== ===========
NOTE 6 - ACCRUED LIABILITIES Accrued liabilities includes the following (amounts in thousands):
JUNE 30, ------------------------ 1998 1999 ----------- ----------- Salaries and wages .............................................................................. $ 638 $ 653 Customer deposits ............................................................................... 70 247 Property, payroll and other taxes ............................................................... 126 109 Interest ........................................................................................ 140 72 Other ........................................................................................... 154 209 ----------- ----------- Total accrued liabilities .................................................................... $ 1,128 $ 1,290 =========== ===========
F-8 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - INDEBTEDNESS Long-term debt includes the following:
JUNE 30, ------------------------ 1998 1999 ----------- ----------- (IN THOUSANDS) Bank Debt Facility Revolving credit ............................................................................. $ 2,490 $ 4,765 Machinery and equipment term loan ............................................................ 382 500 Real estate loan ............................................................................. 906 839 Term loan payable ............................................................................ - 800 Secured Term Loan ............................................................................... 1,416 1,640 Note payable to Derlan, Inc. in connection with the purchase by the Company of substantially all the assets of Derlan, Inc.; secured by assets purchased; subordinated to bank loans; interest at 8% through July 16, 1999 and 12% thereafter; due August 15, 1999 ............... - 750 interest at 12%; due June 2000 ............................................................. - 250 Capital lease obligations related to furniture, office equipment, and machinery and equipment having a net book value of $948,000 at June 30, 1999; payable in varying monthly installments of $365 to $7,140 including interest at 4.7% to 25.7%; final payments in varying dates through August 2003 .......................................... 735 707 Unsecured term note payable to stockholder; interest payable monthly at prime plus 1.25% (9% at June 30, 1999) with an effective interest rate of 22.4% over the term of the note in connection with accretion for the detachable warrants to purchase shares of common stock (Note 10); final payment due April 2003 .......... 400 421 Notes payable in varying monthly installments of $588 to $2,033, including interest at 8% to 9.75%; collateralized by equipment; final payments in varying dates through October 2002 ........................................................... 175 192 Note payable to the City of Peshtigo in monthly installments of $3,257, including interest at 5%; collateralized by certain machinery and equipment and the personal guarantee of the majority stockholder; final payment due January 2004 ......................................... 191 160 Note payable to the City of Peshtigo in monthly installments of $1,451, including interest at 7%; collateralized by substantially all assets (subordinate to bank notes), certain machinery and equipment and the personal guarantee of the majority stockholder; final payment due June 2005 ................................................................................ 96 85 Note payable to the City of Peshtigo in monthly installments of $2,121, including interest at 8%; collateralized by certain machinery and equipment; final payment due July 2001 ........ 70 49 Note payable to the City of Peshtigo in monthly installments of $866, including interest at 7%; collateralized by certain machinery and equipment and the personal guarantee of the majority stockholder; final payment due June 2005 ..................................................... 58 51 Note payable to the City of Peshtigo in monthly installments of $971, including interest at 8%; collateralized by certain machinery and equipment; final payment due June 2001 ............... 31 22 Various loans paid in 1999 ...................................................................... 138 - ----------- ----------- Total long-term debt ......................................................................... 7,088 11,231 Less current maturities ...................................................................... (645) (2,016) ----------- ----------- Long-term debt, less current portion ....................................................... $ 6,443 $ 9,215 =========== ===========
F-9 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - INDEBTEDNESS (CONTINUED) BANK DEBT FACILITY The Company has a financing agreement with their bank. The debt facility, which is secured by substantially all the assets of the Company, includes the following: - - $6,000,000 revolving credit note, interest payable monthly at prime plus .5% on eligible accounts receivable and inventory, due August 2002; - - $500,000 machinery and equipment term loan, monthly principal installments of $5,952 plus interest at 8.25%, with balance due August 2002; - - $850,000 real estate loan, monthly principal installments of $4,660 plus interest at 8.25%, with balance due August 2002; and - - $800,000 special term loan, monthly principal installments of $33,333 plus interest at prime plus .5%, with balance due June 2001. The terms of these financing agreements include provisions which require the maintenance of certain tangible net worth, subordinated debt and debt to tangible net worth plus subordinated debt levels. The financing agreements also require that the Company obtain certain levels of profitability for its fiscal year ended June 30, 1999 and for future periods, among other requirements. In the event that these levels are not met, all liabilities due the bank are due and payable immediately at the option of the bank. SECURED TERM LOAN In May of 1998, the Company secured a term loan in the face amount of $2,500,000. The note bears a stated interest rate of 13.5%, with an effective interest rate of 54.6% over the term of the note in connection with accretion for the detachable warrants to purchase shares of common stock. The note is secured by a second lien on substantially all the assets of the Company and is subordinate to the bank notes. It matures in May 2003. In connection with this loan, the Company issued to the lender a warrant, which allows for purchase of 7.0% of the diluted outstanding common stock as of May 1998 at $.01 per share. On the second anniversary of the closing of the loan, additional shares will accrue at 1% of diluted outstanding common stock as of May 1998 per year until maturity or prepayment of the loan. For 30 days after maturity of the note, the lender may put the warrant back to the Company for fair market value, if not previously exercised (Note 10). AGGREGATE MATURITIES Current maturities of indebtedness at June 30, 1999 are as follows (amounts in thousands):
CAPITAL LEASE OBLIGATIONS ------------------------- NET PRESENT AMOUNTS VALUE OF NOTES MINIMUM REPRESENTING LONG-TERM PAYABLE PAYMENTS INTEREST DEBT ----------- ----------- ----------- ----------- Year ending June 30, 2000................................................................ $ 1,678 $ 397 $ (59) $ 2,016 2001................................................................ 691 293 (23) 961 2002................................................................ 229 100 (3) 326 2003................................................................ 8,790 2 - 8,792 2004................................................................ 48 - - 48 Thereafter.......................................................... 27 - - 27 ----------- ----------- ----------- ----------- Total maturities ................................................. 11,463 792 (85) 12,170 Less future accretion of debt issued with stock warrants.......... (939) - - (939) ----------- ----------- ----------- ----------- Total long-term debt ........................................... $ 10,524 $ 792 $ (85) $ 11,231 =========== =========== =========== ============
F-10 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - INCOME TAXES Deferred tax assets and liabilities are comprised of the following (amounts in thousands):
JUNE 30, 1998 JUNE 30, 1999 ------------------------ ------------------------ SHORT-TERM LONG-TERM SHORT-TERM LONG-TERM (LIABILITY) (LIABILITY) (LIABILITY) (LIABILITY) ASSET ASSET ASSET ASSET ----------- ----------- ----------- ----------- Accounts receivable reserve ........................................... $ 14 $ - $ 31 $ - Inventory obsolescence reserve ........................................ 82 - 77 - Interest accrual ...................................................... 16 - - - Accrued compensation .................................................. 8 - - - Other, net ............................................................ 17 - 28 10 Accelerated depreciation .............................................. - (340) - (292) Federal net operating loss carryforward ............................... - 207 - - Federal research credits .............................................. - 128 - 91 Alternative minimum tax credits ....................................... - 74 103 - Deferred compensation ................................................. - 85 - 163 State credit carryovers and net operating loss carryover, net of federal tax impact .......................................... 32 11 - 8 ----------- ----------- ----------- ----------- Gross deferred asset (liability) ................................. 169 165 239 (20) Valuation allowance .............................................. (169) (165) (106) - ----------- ----------- ----------- ----------- Net deferred tax asset (liability) ............................. $ - $ - $ 133 $ (20) =========== =========== =========== ===========
The effective tax rate differs from the U.S. federal statutory rate principally due to state income taxes and the increase in the valuation allowance. The valuation allowance was decreased by $228,000 during 1999 based on management's reevaluation of the likelihood of realization. For income tax purposes, the Company has the following items to carryforward to reduce income taxes in future years through the year of expiration indicated (amounts in thousands):
FEDERAL FEDERAL STATE RESEARCH JOBS RESEARCH CREDIT CREDIT CREDIT ----------- ----------- ----------- Year of expiration 2000 ............................................................................ $ 48 $ 7 $ - 2001 ............................................................................ 43 3 8 ----------- ----------- ----------- Total ......................................................................... $ 91 $ 10 $ 8 =========== =========== ===========
In addition to the credits listed above, the Company has alternative minimum tax (AMT) credit carryforwards of approximately $103,000. The AMT credits do not expire and can be used when the Company's federal tax liability exceeds the AMT liability. F-11 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS The Company has three nonqualified stock option plans for certain key officers, outside directors and other key salaried employees. No compensation expense related to stock option grants was recorded in 1998 and 1999 as the option exercise prices were equal to fair market value on the date of grant. 1994 PLAN The total shares available and granted on July 1, 1994, were 567,415. The shares are available at a purchase price of $0.35066 per share and vest under the stock option plan at various dates over a three-year period. On January 2, 1995, options to purchase 543,355 shares were exercised under a stock purchase agreement. The stock purchase was financed by the Company through a note with the employees at an annual interest rate of 5.75%. The interest and principal are due the earlier of July 2004 or upon the sale or transfer of any portion of the shares or termination of employment. The outstanding balance of the notes of $191,000 at June 30, 1998 and 1999 has been recorded as a reduction of stockholders' equity. 1997, 1998 AND 1999 PLANS The total shares available and granted on July 15, 1997 were 277,800. The shares are available at a purchase price of $1.75 per share and vest under the stock option plan over a four-year period. The total shares available and granted at various dates during 1998 were 70,000. The shares were available initially at a purchase price of $4.25 per share; this was amended to $2.25 per share in January 1999. Vesting under the plan varies, with all options fully vested within a four-year period. The 1997, 1998 and 1999 plans are subject to the disclosure rules of SFAS 123, Accounting for Stock Based Compensation. Management has determined that the impact of SFAS 123 on the net income and stockholders' equity was not material as of and for the years ended June 30, 1998 and 1999. STOCK APPRECIATION RIGHTS The subsidiary has granted 145,000 shares in a stock appreciation rights program. A $25,000 expense was recognized related to this program for the year ended June 30, 1999. NOTE 10 - STOCK WARRANTS In November of 1997, the Company issued warrants to purchase common stock. Proceeds amounted to $300,000. The warrants allow for conversion into 109,092 of common shares solely at the discretion of the warrant holder at no cost. During 1998, 47,323 shares of common stock were issued under this agreement. The warrants may be exercised at any time through their expiration date of December 2000. In April of 1998, the Company issued warrants to an individual to acquire 50,000 shares of common stock at an exercise price of $0.01 per share. The warrants were issued in conjunction with an unsecured term note payable to stockholder. Additional paid-in capital was credited for $105,000 to recognize the fair market value of the total available stock warrants under the agreement. An additional warrant to acquire 10,000 shares at $0.01 per share will be available in the event the outstanding principal and interest due is not paid in full by the second anniversary date. During 1998, 50,000 shares of common stock were issued to an individual under the agreement. In May of 1998, the Company issued warrants to purchase 433,130 shares of common stock. The warrants were issued in conjunction with a secured term loan, subordinate to the bank notes (Note 7). Additional paid-in capital was credited for $1,120,000 to recognize the fair market value of the total available stock warrants under the agreement. On the second anniversary of the closing of the loan, additional shares will accrue until maturity or prepayment of the loan. The total shares available are as follows: 2000 - 569,121; and 2001 - 639,383. The total shares available and granted at various dates during 1999 were 125,000. The shares are available at a purchase price of $2.25 per share. Vesting under the plan varies, with all options fully vested within a five-year period. F-12 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - DEFERRED COMPENSATION The Company has entered into a deferred compensation agreement with one of its key officers. Benefits are accrued based on a percentage of gross revenues in excess of stated amounts. The amount charged to operations for this plan was $49,000 and $70,000 for the years ended June 30, 1998 and 1999, respectively. Other long-term liabilities include accrued deferred compensation of $251,000 and $321,000 at June 30, 1998 and 1999, respectively. NOTE 12 - COMMITMENTS AND CONTINGENCIES Trident Products, Inc. leases its land and building under a ten year operating lease expiring on March 31, 2008. Rental expense for all operating leases was approximately $250,000 and $270,000 for the years ended June 30, 1998 and 1999, respectively. Future minimum rental payments required under operating leases having noncancelable terms in excess of one year as of June 30, 1999 are as follows (amounts in thousands): Year ending June 30, 2000....................................................... $ 289 2001....................................................... 338 2002....................................................... 357 2003....................................................... 347 2004....................................................... 336 Thereafter ................................................ 1,416 ----------- Total minimum payments .................................. $ 3,083 ===========
The Company is self-funded for its employees' health benefits. The Company has "stop-loss" coverage for costs in excess of $20,000 per individual per year. NOTE 13 - CONSOLIDATED STATEMENTS OF CASH FLOWS The following information supplements the Company's consolidated statement of cash flows (amounts in thousands, except share data).
YEAR ENDED JUNE 30, ------------------------ 1998 1999 ----------- ----------- Purchase of substantially all of the assets of Derlan, Inc. as follows: Inventories .................................................................................. $ - $ 1,245 Equipment .................................................................................... - 180 Goodwill ..................................................................................... - 1,675 ----------- ----------- Total cash paid for acquisition ............................................................ $ - $ 3,100 =========== =========== Cash paid during the year for: Interest...................................................................................... $ 708 $ 1,121 Income taxes.................................................................................. - 152 Noncash investing and financing activities: Equipment acquired under capital lease obligations ........................................... $ 234 $ 242 Unsecured notes payable to stockholders converted to 428,570 shares of common stock .......... 150 -
F-13 ERDA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - RETIREMENT SAVINGS PLAN The Company has a 401(k) savings plan covering substantially all employees. As such, the Company's employees may make voluntary contributions to the plan with a discretionary match made by the Company. The Company's contributions to the plan amounted to approximately $26,000 and $63,000 for the years ended June 30, 1998 and 1999, respectively. NOTE 15 - SUBSEQUENT EVENTS (UNAUDITED) On June 30, 2000, all of the Company's common stock was purchased by a wholly-owned subsidiary of DeCrane Aircraft Holdings, Inc. pursuant to a merger agreement and related plan of merger approved by the Company's stockholders on June 23, 2000. Immediately prior to the effective time of the merger, the Company distributed to each stockholder, on a pro rata basis, the shares of its Trident Products subsidiary. F-14 ERDA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) ASSETS Current assets Cash ........................................................................................ $ 29 $ 21 Accounts receivable, net ..................................................................... 4,938 5,538 Inventories .................................................................................. 5,548 8,595 Deferred income taxes ........................................................................ 133 200 Other current assets ......................................................................... 53 277 ----------- ----------- Total current assets ....................................................................... 10,701 14,631 Property, plant and equipment, net .............................................................. 4,301 4,321 Other assets, principally intangibles, net ...................................................... 2,154 2,114 ----------- ----------- Total assets ............................................................................. $ 17,156 $ 21,066 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt ............................................................ $ 2,016 $ 2,098 Accounts payable.............................................................................. 1,044 3,143 Accrued liabilities .......................................................................... 1,290 1,640 Income taxes payable ......................................................................... 297 368 ----------- ----------- Total current liabilities .................................................................. 4,647 7,249 Long-term debt .................................................................................. 9,215 9,867 Deferred income taxes ........................................................................... 20 - Other long-term liabilities ..................................................................... 366 500 ----------- ----------- Commitments and contingencies (Note 12) Stockholders' equity Common stock, no par value, 10,000,000 shares authorized; 5,300,746 shares issued and outstanding at June 30, 1999 and March 31, 2000.................................. 2,915 2,915 Additional paid-in capital ................................................................... 1,346 1,346 Stock purchase plan notes receivable ......................................................... (191) (191) Accumulated deficit .......................................................................... (1,162) (620) ----------- ----------- Total stockholders' equity ................................................................. 2,908 3,450 ----------- ----------- Total liabilities and stockholders' equity ............................................... $ 17,156 $ 21,066 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-15 ERDA, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
NINE MONTHS ENDED MARCH 31, ------------------------ 1999 2000 ----------- ----------- (UNAUDITED) Sales ........................................................................................... $ 17,510 $ 20,525 Cost of sales ................................................................................... 13,721 15,798 ----------- ----------- Gross profit ............................................................................. 3,789 4,727 ----------- ----------- Operating expenses Selling expenses ............................................................................. 670 863 General and administrative expenses .......................................................... 1,669 1,842 Nonrecurring start-up costs .................................................................. - 90 ----------- ----------- Total operating expenses ................................................................... 2,339 2,795 ----------- ----------- Income from operations ................................................................... 1,450 1,932 Other expenses Interest expense ............................................................................. 632 897 Minority interest in earnings of subsidiary .................................................. - 45 Other expenses ............................................................................... 184 184 ----------- ----------- Income before provision for income taxes ........................................................ 634 806 Provision for income taxes ...................................................................... 166 264 ----------- ----------- Net income ...................................................................................... $ 468 $ 542 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-16 ERDA, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
STOCK COMMON STOCK ADDITIONAL PURCHASE ------------------------ PAID-IN PLAN NOTES ACCUMULATED SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL ----------- ----------- ----------- ----------- ----------- ----------- Balance, June 30, 1999 ..................... 5,300,746 2,915 1,346 (191) (1,162) 2,908 Net income (unaudited) ..................... - - - - 542 542 ----------- ----------- ----------- ----------- ----------- ----------- Balance, March 31, 2000 (unaudited) ........ 5,300,746 $ 2,915 $ 1,346 $ (191) $ (620) $ 3,450 =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-17 ERDA, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED MARCH 31, ------------------------ 1999 2000 ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................................................... $ 468 $ 542 Adjustments to reconcile net income to net cash provided by (used for) operating activities Depreciation and amortization .............................................................. 472 765 Minority interest in earnings of subsidiary ................................................ - 45 Deferred income taxes ...................................................................... - (87) Loss on sale of property, plant and equipment .............................................. - - Changes in assets and liabilities Accounts receivable ...................................................................... (1,053) (600) Inventories .............................................................................. 495 (3,047) Other current assets ..................................................................... (225) (224) Accounts payable ......................................................................... (378) 2,099 Accrued liabilities ...................................................................... 415 403 Income taxes payable ..................................................................... 126 71 Deferred compensation .................................................................... 53 104 ----------- ----------- Cash provided by operating activities .................................................. 373 71 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ......................................................................... (752) (785) Purchase of net assets in acquisition ........................................................ - - Increase in other assets ..................................................................... 183 42 ----------- ----------- Cash used for investing activities ..................................................... (569) (743) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt and capital leases ...................................... (510) (408) Proceeds from issuance of long-term debt ..................................................... 644 1,072 ----------- ----------- Cash provided by financing activities .................................................. 134 664 ----------- ----------- Net decrease in cash ............................................................................ (62) (8) Cash at beginning of period ..................................................................... 64 29 ----------- ----------- Cash at end of period ........................................................................... $ 2 $ 21 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-18 ERDA, INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS The consolidated interim financial statements included in this report are unaudited. The Company believes the interim financial statements are presented on a basis consistent with the audited financial statements. The Company also believes that the interim financial statements contain all adjustments necessary for a fair presentation of the results for such interim periods. All of these adjustments are normal recurring adjustments. The results of operations for interim periods do not necessarily predict the operating results for the full year. The consolidated balance sheet as of June 30, 1999 has been derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles as permitted by interim reporting requirements. The information included in this report should be read in conjunction with the audited financial statements and related notes included elsewhere herein. NOTE 2 - NONRECURRING START-UP COSTS Nonrecurring start-up costs reflect non-capitalizable costs incurred through March 31, 2000 in connection with establishing a Mexico-based medical products manufacturing facility. NOTE 3 - INVENTORIES Inventories are comprised of the following (amounts in thousands):
JUNE 30, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) Raw materials and finished components ........................................................... $ 4,299 $ 7,542 Work in process ................................................................................. 941 710 Finished goods .................................................................................. 308 343 ----------- ----------- Total inventories ............................................................................ $ 5,548 $ 8,595 =========== ===========
NOTE 4 - ACCRUED LIABILITIES Accrued liabilities includes the following (amounts in thousands):
JUNE 30, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) Salaries and wages .............................................................................. $ 653 $ 871 Customer deposits ............................................................................... 247 541 Property, payroll and other taxes ............................................................... 109 93 Interest ........................................................................................ 72 120 Other ........................................................................................... 209 15 ----------- ----------- Total accrued liabilities .................................................................... $ 1,290 $ 1,640 =========== ===========
NOTE 5 - SUBSEQUENT EVENTS On June 30, 2000, all of the Company's common stock was purchased by a wholly-owned subsidiary of DeCrane Aircraft Holdings, Inc. pursuant to a merger agreement and related plan of merger approved by the Company's stockholders on June 23, 2000. Immediately prior to the effective time of the merger, the Company distributed to each stockholder, on a pro rata basis, the shares of its Trident Products subsidiary. F-19 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA BASIS OF PRESENTATION The following unaudited pro forma consolidated financial data for DeCrane Aircraft is based on our historical financial statements adjusted to reflect: - our 1999 PATS, PPI, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity acquisitions; and - our 2000 Carl Booth and ERDA acquisitions, which were completed subsequent to March 31, 2000. For additional information on the 1999 acquisitions, see the notes to our audited consolidated financial statements included in our Form 10-K for the year ended December 31, 1999. For additional information on the Carl Booth acquisition, see our Form 8-K filed on May 25, 2000 and our Form 8-K / A (Amendment No. 1) filed on June 16, 2000. For additional information on the ERDA acquisition, see our Form 8-K filed on July 13, 2000 and Item 7(a) included elsewhere in this Form 8-K. Unaudited pro forma consolidated statements of operations are presented for the year ended December 31, 1999 and the three months ended March 31, 2000. The statements reflect all of our acquisitions as if they had occurred as of January 1, 1999. The unaudited pro forma balance sheet reflects the Carl Booth and ERDA acquisitions as of March 31, 2000; all of the 1999 acquisitions had occurred by that date and are therefore reflected in our historical balance sheet. The pro forma adjustments are based upon available information and assumptions management believes are reasonable under the circumstances. The unaudited pro forma consolidated financial data and accompanying notes should be read in conjunction with our historical audited and unaudited financial statements and related notes and the historical audited financial statements and related notes of the companies we have acquired. The pro forma financial data does not purport to represent what our actual results of operations or actual financial position would have been if the transactions described above in fact occurred on such dates or to project our results of operations or financial position for any future period or date. P-1 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 2000
COMPANIES ACQUIRED SUBSEQUENT DECRANE TO MARCH 31, 2000 (2) AIRCRAFT ---------------------------- HISTORICAL (1) HISTORICAL (3) ADJUSTMENTS PRO FORMA -------------- ------------- ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Current assets Cash and cash equivalents ........................... $ 648 $ 2,798 $ 8,489 (4) $ 11,935 Accounts receivable, net ............................ 42,755 7,177 - 49,932 Inventories ......................................... 62,174 11,590 - 73,764 Deferred income taxes ............................... 5,452 200 - 5,652 Prepaid expenses and other current assets ........... 2,110 103 - 2,213 ----------- ---------- ----------- ----------- Total current assets .............................. 113,139 21,868 8,489 143,496 ----------- ---------- ----------- ----------- Property and equipment, net ............................ 37,223 5,631 - 42,854 ----------- ---------- ----------- ----------- Other assets, principally intangibles, net Goodwill and other intangibles ...................... 356,588 1,591 31,858 (5) 390,037 Deferred financing costs ............................ 11,517 188 1,712 (6) 13,417 Other assets ........................................ 1,220 334 - 1,554 ----------- ---------- ----------- ----------- Net other assets, principally intangibles ......... 369,325 2,113 33,570 405,008 ----------- ---------- ----------- ----------- Total assets .................................... $ 519,687 $ 29,612 $ 42,059 $ 591,358 =========== ========== =========== =========== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDER'S EQUITY Current liabilities Current portion of long-term debt ....................... $ 5,544 $ 2,000 $ (1,047) (7) $ 6,497 Accounts payable ........................................ 15,840 3,771 - 19,611 Accrued liabilities ..................................... 27,976 4,651 (119) (8) 32,508 Income taxes payable .................................... 3,994 366 - 4,360 ----------- ---------- ----------- ----------- Total current liabilities ............................. 53,354 10,788 (1,166) 62,976 ----------- ---------- ----------- ----------- Long-term debt Senior revolving credit facility ........................ 26,100 - (26,100) (7) - Senior term facility .................................... 207,525 - 54,287 (7) 261,812 Senior subordinated notes ............................... 100,000 - - 100,000 Other long-term obligations ............................. 1,263 9,795 (8,881) (7) 2,177 ----------- ---------- ----------- ----------- Total long-term debt .................................. 334,888 9,795 19,306 363,989 ----------- ---------- ----------- ----------- Deferred income taxes ...................................... 21,763 - - 21,763 Other long-term liabilities ................................ 3,223 448 - 3,671 Mandatorily redeemable preferred stock ..................... - - 25,000 (9) 25,000 Stockholder's equity ....................................... 106,459 8,581 (1,081) (10) 113,959 ----------- ---------- ----------- ----------- Total liabilities, mandatorily redeemable preferred stock and stockholder's equity ......... $ 519,687 $ 29,612 $ 42,059 $ 591,358 =========== ========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Data. P-2 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
ACQUISITION ADJUSTMENTS (12) DECRANE ------------------------------ AIRCRAFT HISTORICAL HISTORICAL (11) RESULTS (13) ADJUSTMENTS PRO FORMA --------------- ------------ --------------- --------- (DOLLARS IN THOUSANDS) Revenues ................................................ $ 244,048 $ 88,067 $ (2,890) (14) $ 329,225 Cost of sales ........................................... 165,871 63,386 (2,890) (14) 226,367 ----------- ---------- ----------- ----------- Gross profit ....................................... 78,177 24,681 - 102,858 Selling, general and administrative expenses ............ 40,803 8,831 (1,206) (15) 48,428 Amortization of intangible assets........................ 13,073 363 2,667 (16) 16,103 ----------- ---------- ----------- ----------- Operating income ................................... 24,301 15,487 (1,461) 38,327 Interest expense ........................................ 27,918 1,084 10,446 (17) 39,448 Other income ............................................ (199) (54) - (253) ----------- ---------- ----------- ----------- Income (loss) before provision for income taxes and extraordinary item ......................... (3,418) 14,457 (11,907) (868) Provision for income taxes (benefit) .................... 952 (438) 1,802 (18) 2,316 ----------- ---------- ----------- ----------- Net income (loss) ....................................... $ (4,370) $ 14,895 $ (13,709) $ (3,184) =========== ========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Data. P-3 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000
ACQUISITION ADJUSTMENTS (12) DECRANE ------------------------------ AIRCRAFT HISTORICAL HISTORICAL (11) RESULTS (13) ADJUSTMENTS PRO FORMA --------------- ------------ --------------- --------- (DOLLARS IN THOUSANDS) Revenues ................................................ $ 79,178 $ 11,876 $ (1,102) (14) $ 89,952 Cost of sales ........................................... 53,026 7,716 (1,102) (14) 59,640 ----------- ---------- ----------- ----------- Gross profit ....................................... 26,152 4,160 - 30,312 Selling, general and administrative expenses ............ 11,046 1,152 - (15) 12,198 Amortization of intangible assets........................ 4,213 84 195 (16) 4,492 ----------- ---------- ----------- ----------- Operating income ................................... 10,893 2,924 (195) 13,622 Interest expense ........................................ 8,676 285 1,342 (17) 10,303 Other expenses .......................................... 64 - - 64 ----------- ---------- ----------- ----------- Income (loss) before provision for income taxes and extraordinary item ........................ 2,153 2,639 (1,537) 3,255 Provision for income taxes .............................. 1,398 223 299 (18) 1,920 ----------- ---------- ----------- ----------- Net income (loss) ....................................... $ 755 $ 2,416 $ (1,836) $ 1,335 =========== ========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Data. P-4 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (1) Reflects our financial position subsequent to our 1999 PATS, PPI, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity acquisitions. Excludes the effect of our acquisition of Carl Booth and ERDA, which occurred subsequent to March 31, 2000. (2) Reflects our acquisitions of Carl Booth and ERDA subsequent to March 31, 2000. The acquisitions were funded with borrowings under our senior credit facility, a capital contribution from DeCrane Holdings and the proceeds from the sale of preferred stock. Concurrently with the Carl Booth acquisition financing, we also increased our senior term debt borrowings to refinance other existing senior credit facility indebtedness and to raise additional cash to fund future acquisitions. The sources and uses of funds were as follows:
CARL BOOTH SENIOR AND CREDIT ERDA FACILITY ACQUISITIONS REFINANCING PRO FORMA ------------ ----------- ----------- (DOLLARS IN THOUSANDS) SOURCES: Acquisition financing: Senior credit facility borrowings ............................. $ 15,713 $ (15,713) $ - Proceeds from sale of preferred stock ......................... 25,000 - 25,000 Capital contribution from DeCrane Holdings .................... 7,500 - 7,500 Senior credit facility refinancing (a): Term A facility ............................................... - 2,500 2,500 Term D facility ............................................... - 52,500 52,500 ----------- ----------- ----------- Total sources ............................................... $ 48,213 $ 39,287 $ 87,500 =========== =========== =========== USES: Carl Booth acquisition: Purchase of net assets ........................................ $ 18,653 $ - $ 18,653 Acquisition fees and expenses ................................. 845 - 845 ERDA acquisition: Purchase of common stock ...................................... 14,955 - 14,955 Debt repaid at acquisition, including accrued interest ........ 10,760 - 10,760 Acquisition fees and expenses ................................. 3,000 - 3,000 Senior credit facility refinancing (a): Acquisition revolving credit facility (b)...................... - 25,000 25,000 Working capital revolving credit facility (b).................. - 1,100 1,100 Financing fees and expenses ................................... - 1,900 1,900 Excess cash (b) ............................................... - 11,287 11,287 ----------- ----------- ----------- Total uses .................................................. $ 48,213 $ 39,287 $ 87,500 =========== =========== ===========
- ---------- (a) Excludes the conversion of $69.3 million of Term C indebtedness to Term B indebtedness in conjunction with the refinancing. (b) A portion of the proceeds from the financing were used to repay $32.0 million of then existing revolving credit facility borrowings. The pro forma balance sheet reflects the repayment of $26.1 million of revolving credit facility borrowings outstanding as of March 31, 2000 and the excess funds as cash. P-5 (3) Reflects the historical financial position of Carl Booth and ERDA, which we acquired subsequent to March 31, 2000 and therefore are not included in our historical amounts. A table summarizing their financial position as of March 31, 2000 appears below.
ERDA AND SUBSIDIARY ----------------------- CARL NOT BOOTH TOTAL (a) ACQUIRED (b) TOTAL ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Current assets Cash and cash equivalents .............................. $ 2,798 $ 21 $ (21) $ 2,798 Accounts receivable, net ............................... 1,930 5,538 (291) 7,177 Inventories ............................................ 3,647 8,595 (652) 11,590 Deferred income taxes .................................. - 200 - 200 Prepaid expenses and other current assets .............. - 277 (174) 103 ----------- ----------- ----------- ----------- Total current assets ................................. 8,375 14,631 (1,138) 21,868 ----------- ----------- ----------- ----------- Property and equipment, net .............................. 1,734 4,321 (424) 5,631 ----------- ----------- ----------- ----------- Other assets, principally intangibles, net Goodwill and other intangibles ......................... - 1,591 - 1,591 Deferred financing costs ............................... - 188 - 188 Other assets ........................................... - 335 (1) 334 ----------- ----------- ----------- ----------- Net other assets, principally intangibles ............ - 2,114 (1) 2,113 ----------- ----------- ----------- ----------- Total assets ...................................... $ 10,109 $ 21,066 $ (1,563) $ 29,612 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt ...................... $ - $ 2,098 $ (98) $ 2,000 Accounts payable ....................................... 765 3,143 (137) 3,771 Accrued liabilities .................................... 3,132 1,640 (121) 4,651 Income taxes payable ................................... - 368 (2) 366 ----------- ----------- ----------- ----------- Total current liabilities ............................ 3,897 7,249 (358) 10,788 Long-term debt ........................................... - 9,867 (72) 9,795 Other long-term liabilities .............................. - 500 (52) 448 Stockholders' equity ..................................... 6,212 3,450 (1,081) 8,581 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity ........ $ 10,109 $ 21,066 $ (1,563) $ 29,612 =========== =========== =========== ===========
-------------------- (a) Reflects the financial position of ERDA and its majority-owned subsidiary. (b) Reflects the effect of a dividend ERDA paid to its stockholders in the form of the stock of its majority-owned subsidiary immediately prior to acquisition. (4) Reflects $11.3 million of excess cash received in connection with the financing reduced by $2.8 million of Carl Booth cash not acquired. (5) Reflects the excess of the total purchase price over the fair value of the Carl Booth & ERDA assets acquired. For purposes of this pro forma consolidated financial data, we allocated the excess purchase price to goodwill and amortized the amounts on a straight-line basis over 30 years. Such allocations are preliminary and may change upon completion of the final valuations of the assets acquired. P-6 (6) Reflects $1.9 million of fees and expenses associated with the financing, reduced by a $188,000 write-off of financing costs related to debt repaid upon acquisition of ERDA. (7) Reflects the net increase resulting from the senior credit facility borrowings in connection with the financing, reduced by debt repaid upon acquisition of ERDA as follows:
LONG-TERM DEBT ------------------------------------- CURRENT LONG-TERM TOTAL ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Senior term debt borrowings ..................................... $ 713 $ 54,287 $ 55,000 Senior revolving credit facility repayment ...................... - (26,100) (26,100) Debt repaid upon acquisition of ERDA............................. (1,760) (8,881) (10,641) ----------- ----------- ----------- Net increase (decrease)........................................ $ (1,047) $ 19,306 $ 18,259 =========== =========== ===========
(8) Reflects accrued interest paid upon repayment of ERDA's debt at acquisition. (9) Reflects proceeds from the sale of preferred stock. (10) Reflects the additional capital contribution from DeCrane Holdings, reduced by the elimination of Carl Booth's and ERDA's stockholders' equity upon acquisition. (11) Reflects our historical results of operations for the year ended December 31, 1999 and the three months ended March 31, 2000 derived from our historical audited and unaudited consolidated financial statements. (12) Reflects the historical results of operations of companies we acquired for the periods not included in our historical results. (13) Reflects the results of operations of companies we acquired that are not included in our historical results. The results of operations for the companies we acquired are for the periods from the beginning of the period presented to the dates indicated below. For periods subsequent to those dates, their respective results of operations are included in our historical results. 1999 ACQUISITIONS - - PATS - January 21, 1999 - - PPI - April 22, 1999 - - Custom Woodwork - August 4, 1999; - - PCI NewCo - October 5, 1999; - - International Custom Interiors - October 7, 1999 - - Infinity - December 16, 1999 2000 ACQUISITION - - Carl Booth - March 31, 2000 - - ERDA - March 31, 2000, 2000 Tables summarizing the acquired companies' results of operations for the twelve months ended December 31, 1999 and the three months ended March 31, 2000 appear below. P-7
2000 ACQUISITIONS TOTAL 1999 ----------------- ACQUISI- CARL TIONS BOOTH ERDA (a) TOTAL --------- --------- --------- --------- (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, 1999 Revenues ................................................... $ 52,834 $ 13,757 $ 21,476 $ 88,067 Cost of sales .............................................. 36,440 10,163 16,783 63,386 --------- --------- --------- --------- Gross profit ............................................... 16,394 3,594 4,693 24,681 Selling, general and administrative expenses ............... 5,324 1,237 2,270 8,831 Amortization of intangible assets .......................... 124 - 239 363 --------- --------- --------- --------- Operating income ........................................... 10,946 2,357 2,184 15,487 Interest expense (income) .................................. 152 (65) 997 1,084 Other income ............................................... (29) (25) - (54) --------- --------- --------- --------- Income before provision for income taxes and extraordinary item ...................................... 10,823 2,447 1,187 14,457 Provision for income taxes (benefit) ....................... (827) - 389 (438) --------- --------- --------- --------- Net income ................................................. $ 11,650 $ 2,447 $ 798 $ 14,895 ========= ========= ========= =========
1999 ACQUISITIONS --------------------------------------------------------------------------- INTERNATIONAL CUSTOM PCI CUSTOM PATS PPI WOODWORK NEWCO INTERIORS INFINITY TOTAL --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, 1999 Revenues ...................................... $ 451 $ 12,757 $ 4,972 $ 6,692 $ 4,753 $ 23,209 $ 52,834 Cost of sales ................................. 1,229 8,435 2,203 4,747 3,057 16,769 36,440 --------- --------- --------- --------- --------- --------- --------- Gross profit (loss)............................ (778) 4,322 2,769 1,945 1,696 6,440 16,394 Selling, general and administrative expenses .. 611 944 262 520 492 2,495 5,324 Amortization of intangible assets ............. - 124 - - - - 124 --------- --------- --------- --------- --------- --------- --------- Operating income (loss) ....................... (1,389) 3,254 2,507 1,425 1,204 3,945 10,946 Interest expense (income) ..................... 23 127 (11) (2) (19) 34 152 Other expenses (income) ....................... 11 (33) - (3) (4) - (29) --------- --------- --------- --------- --------- --------- --------- Income (loss) before provision for income taxes and extraordinary item ......... (1,423) 3,160 2,518 1,430 1,227 3,911 10,823 Provision for income taxes (benefit) .......... (1,244) - - - 417 - (827) --------- --------- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (179) $ 3,160 $ 2,518 $ 1,430 $ 810 $ 3,911 $ 11,650 ========= ========= ========= ========= ========= ========= =========
2000 ACQUISITIONS -------------------- CARL BOOTH ERDA (a) TOTAL --------- --------- --------- (DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 2000 Revenues .............................................................. $ 4,414 $ 7,462 $ 11,876 Cost of sales ......................................................... 2,172 5,544 7,716 --------- --------- --------- Gross profit .......................................................... 2,242 1,918 4,160 Selling, general and administrative expenses .......................... 307 845 1,152 Amortization of intangible assets ..................................... - 84 84 --------- --------- --------- Operating income ...................................................... 1,935 989 2,924 Interest expense (income) ............................................. (22) 307 285 --------- --------- --------- Income before provision for income taxes and extraordinary item .................................................. 1,957 682 2,639 Provision for income taxes ............................................ - 223 223 --------- --------- --------- Net income ............................................................ $ 1,957 $ 459 $ 2,416 ========= ========= =========
(a) Excludes the operating results of ERDA's majority owned subsidiary not acquired. P-8 (14) Reflects the elimination of intercompany sales. (15) Reflects the net decrease in selling, general and administrative expenses attributable to the following:
THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ----------- ----------- (DOLLARS IN THOUSANDS) Acquisition related expenses (a)............................................. $ (716) $ - Bonuses and employment contract termination expenses (b)..................... (468) - Other, net (c) .............................................................. (22) - ----------- ----------- Decrease in selling, general and administrative expenses .................. $ (1,206) $ - =========== ===========
- ---------- (a) Reflects a reduction for non-capitalizable acquisition expenses incurred by PATS and Infinity on behalf of their stockholders related to their respective acquisitions by us. (b) Reflects a reduction in expenses attributable to employment contract termination expenses and nonrecurring bonuses awarded prior to, and in anticipation of, our acquisitions of PATS and Infinity. (c) Reflects cost savings attributable to employee benefit plans implemented at the companies we acquired. (16) Reflects the net increase in amortization expense pertaining to the amortization of goodwill and other intangible assets related to the companies we have acquired as follows:
YEARS THREE INTANGIBLE ESTIMATED YEAR ENDED MONTHS ENDED ASSET USEFUL DECEMBER 31, MARCH 31, AMOUNT LIFE (a) 1999 2000 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Elimination of predecessor basis amortization (b)............ $ (363) $ (84) Amortization attributable to companies acquired (c): Goodwill .................................................. $ 144,371 30 2,759 279 Customer contracts ........................................ 8,390 7 100 - FAA certifications ........................................ 2,000 15 11 - Engineering drawings ...................................... 2,624 15 25 - Assembled workforce ....................................... 2,327 7 135 - ----------- ----------- Net increase in amortization expense .................... $ 2,667 $ 195 =========== ===========
- ---------- (a) Amortized on a straight-line basis over the respective estimated useful lives. (b) Reflects the elimination of amortization expense recorded by PPI and ERDA for periods prior to their acquisition. (c) Reflects adjustments for all of our 1999 and 2000 acquisitions from the beginning of the period presented to their respective acquisition dates; subsequent to those dates, amortization expense is included in our historical results. (17) Reflects the net increase in interest expense, including deferred financing cost amortization and commitment fees, as a result of our 1999 and 2000 acquisitions as if they all had occurred on January 1, 1999. The components of pro forma interest expense are summarized in the table on the following page. P-9
THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, RATE OR TERM AMOUNT 1999 2000 ---------------- ----------- ------------ ------------ (DOLLARS IN THOUSANDS) Senior credit facility (a): Term facilities: Term A ............................... LIBOR (b) + 3.0% (c) 3,450 897 Term B ............................... LIBOR (b) + 3.5% (d) 11,930 3,215 Term D ............................... LIBOR (b) + 4.0% (e) 8,668 2,337 Senior subordinated notes ................ 12.00% 100,000 12,000 3,000 Customer advance ......................... 7.50% (f) 380 76 Other long-term obligations .............. 4.7% to 25.7% (g) 251 91 Deferred financing cost amortization: Senior revolving credit facilities ..... 6 years (h) 1,277 213 53 Senior term facilities: Term A ............................... 6 years (i) 1,141 343 82 Term B ............................... 7 years (i) 4,211 679 169 Term D ............................... 6 years (i) 3,100 481 120 Senior subordinated notes .............. 10 years (i) 5,810 581 145 Commitment fees and expenses ............. 472 118 ----------- ----------- Pro forma interest expense (j) ....... $ 39,448 $ 10,303 =========== ===========
- ---------- (a) Reflects our senior credit facility as amended for all of our 1999 and 2000 acquisitions and the 2000 debt refinancing, as if all events had occurred on January 1, 1999. (b) Calculations based on the historical LIBOR rates charged during the respective periods. The weighted average historical LIBOR rates were as follows:
THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ------------ ------------ Term A facility ....................................................... 5.368% 6.111% Term B facility ....................................................... 5.369% 6.119% Term D facility ....................................................... 5.396% 6.191%
(c) Reflects Term A facility borrowings of $34.5 million at December 31, 1998 plus $7.5 million pro forma additional borrowings as of January 1, 1999 for our Infinity and Carl Booth acquisitions, reduced by quarterly principal payments of $500,000 on March 31, 1999, $531,000 on June 30 and September 30, 1999 and $1.1 million on December 31, 1999 and March 31, 2000. The pro forma weighted average borrowings outstanding under the Term A facility were $41.2 million for the twelve months ended December 31, 1999 and $39.4 million for the three months ended March 31, 2000. (d) Reflects Term B facility borrowings of $44.9 million at December 31, 1998 plus $90.0 million pro forma additional borrowings as of January 1, 1999 for our PATS and PPI acquisition, reduced by quarterly principal payments of $163,000 on March 31, 1999 and $338,000 commencing June 30, 1999. The pro forma weighted average borrowings outstanding under the Term B facility were $134.5 million for the twelve months ended December 31, 1999 and $133.7 million for the three months ended March 31, 2000. (e) Reflects Term D facility pro forma additional borrowings of $92.5 million as of January 1, 1999 for our Infinity and Carl Booth acquisitions and to repay then existing revolving credit facility borrowings as of January 1, 1998, reduced by quarterly principal payments of $100,000 on March 31, 1999 and $231,000 commencing June 30, 1999. The pro forma weighted average borrowings outstanding under the Term D facility were $92.3 million for the twelve months ended December 31, 1999 and $91.7 million for the three months ended March 31, 2000. (f) Reflects a $5.0 million customer advance related to our PATS acquisition, pro forma as of January 1, 1999, reduced by principal payments of $975,000 on November 30, 1999. The pro forma weighted average advance outstanding was $4.9 million for the twelve months ended December 31, 1999 and $4.0 million for the three months ended March 31, 2000. P-10 (g) Reflects historical interest expense related to capital lease obligations and equipment term debt financing. (h) Deferred financing costs are amortized on a straight-line basis over the term of the agreement. (i) Deferred financing costs are amortized using the effective interest method. (j) A 0.125% change in the interest rates charged on variable rate borrowings would change interest expense and net income (loss) by:
THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ------------ ------------ (DOLLARS IN THOUSANDS) Interest expense ...................................................... $ 340 $ 83 Net income (loss) ..................................................... 206 50
(18) Represents an increase in the provision for income taxes as a result of reflecting a pro forma provision for income taxes on the income of PPI, Custom Woodwork, PCI NewCo, Infinity and Carl Booth which were taxed as S Corporations or partnerships prior to their acquisitions, partially offset by a decrease in pro forma taxable income. The effective tax rate differs from the U.S. federal statutory rate primarily due to goodwill amortization related to acquisitions not deductible for income tax purposes and state and foreign income taxes. (19) Supplemental pro forma financial information is as follows:
THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, 1999 2000 ------------ ------------ (DOLLARS IN THOUSANDS) Net cash provided by (used for): Operating activities ................................................................... $ 23,902 $ (2,996) Investing activities ................................................................... (206,709) (78,219) Financing activities ................................................................... 191,227 84,282 EBITDA (a) ............................................................................... 75,136 20,629 Depreciation and amortization (b) ........................................................ 23,770 6,828 Capital expenditures: Paid in cash ........................................................................... 9,276 1,827 Financed with capital lease obligations ................................................ 2,388 58 Cash interest expense .................................................................... 37,151 9,734 Ratio of earnings to fixed charges (c) ................................................... -- 1.3x
- ---------- (a) EBITDA equals operating income plus depreciation, amortization, the 1999 Systems Integration Group non-recurring restructuring charge, non-recurring charges, DLJ advisory fees, non-cash acquisition related charges and other non-operating costs. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of our operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. The funds depicted by EBITDA are not available for our discretionary use due to funding requirements for working capital, capital expenditures, debt service, income taxes and other commitments and contingencies. We believe that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method, and the EBITDA numbers set forth above may not be comparable to EBITDA reported by other companies. (b) Reflects depreciation and amortization of plant and equipment, goodwill and other intangible assets. Excludes amortization of deferred financing costs, which are classified as a component of interest expense. P-11 (c) For purposes of calculating the ratio of earnings to fixed charges, earnings represent net income before income taxes, minority interest in the income of majority-owned subsidiaries, extraordinary items and fixed charges. Fixed charges consist of: - interest, whether expensed or capitalized; - amortization of debt expense and discount relating to any indebtedness, whether expensed or capitalized; and - one-third of rental expense under operating leases which is considered to be a reasonable approximation of the interest portion of such expense. There were deficiencies of earnings to fixed charges of $671,000 for the year ended December 31, 1999. P-12 EX-3.3-1 2 ex-3_31.txt EXHIBIT 3.3.1 EXHIBIT 3.3.1 CERTIFICATE OF FORMATION OF AEROSPACE DISPLAY SYSTEMS, LLC 1. The name of the limited liability company is Aerospace Display Systems, LLC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of Aerospace Display Systems, LLC on June 28, 2000. /s/ ------------------------------------ Sonji Sanders Organizer 1 STATE OF DELAWARE CERTIFICATE OF MERGER OR CONSOLIDATION OF DOMESTIC CORPORATION AND LIMITED LIABILITY COMPANY Pursuant to Title 8, Section 264(c) of the Delaware General Corporation Law, the undersigned surviving limited liability company has executed the following Certificate of Merger: FIRST: The name of the surviving limited liability company is Aerospace Display Systems, LLC, a Delaware limited liability company; and the name of the corporation being merged into this surviving limited liability company is Aerospace Display Systems, Inc., a Delaware corporation, a wholly-owned subsidiary of the surviving limited liability company.. SECOND: The Agreement of Merger has been approved, adopted, certified, executed and acknowledged by the surviving limited liability company and the merging corporation corporation in accordance with Title 8, Section 264(c) of the Delaware General Corporation Law. THIRD: The name of the surviving limited liability company is: AEROSPACE DISPLAY SYSTEMS, LLC. The certificate of formation and the limited liability company operating agreement of Custom Woodwork & Plastics, LLC will continue in effect, as the certificate of formation and the limited liability company operating agreement of the surviving limited liability company. FOURTH: The merger is to become effective upon the filing of this certificate, subject to the provisions of the Delaware General Corporation Law. FIFTH: The Agreement of Merger is on file at Aerospace Display Systems, LLC, 2321 Topaz Drive, Hatfield, Pennsylvania 19440, the principal place of business of the surviving limited liability company. SIXTH: A copy of the Agreement of Merger will be furnished by the surviving limited liability company on request, without cost, to any member of the surviving limited liability company or stock holder of the merging corporation. 2 SEVENTH: The surviving limited liability company agrees that it may be served with process in the State of Delaware in any proceeding for enforcement of any obligation of any constituent corporation or limited liability company of Delaware, as well as for enforcement of any obligation of the surviving limited liability company arising from this merger, including any suit or other proceeding to enforce the rights of any stockholders as determined in appraisal proceedings pursuant to the provisions of Section 262 of the Delaware General Corporation Law, and irrevocably appoints the Secretary of State of Delaware as its agent to accept service of process in any such suit or proceeding. The Secretary of State shall mail any such process to the surviving limited liability company at Aerospace Display Systems, LLC, 2321 Topaz Drive, Hatfield, Pennsylvania 19440. IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by an authorized officer, the 27th day of July, 2000. ---- AEROSPACE DISPLAY SYSTEMS, LLC /s/ BY:________________________________ NAME: Richard J. Kaplan TITLE: Chief Financial Officer 3 EX-3.3-2 3 ex-3_32.txt EXHIBIT 3.3.2 EXHIBIT 3.3.2 LIMITED LIABILITY COMPANY AGREEMENT OF AEROSPACE DISPLAY SYSTEMS, LLC This LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of Aerospace Display Systems, LLC, a limited liability company organized under the laws of Delaware (the "Company"), is made and entered into effective as of July 1, 2000 by DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Initial Member"). Capitalized words and phrases used in this Agreement and not otherwise defined here are used as defined in Article 13 or in Section 14.21 (Tax Definitions). RECITALS WHEREAS, the Initial Member formed the Company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., as amended from time to time (the "Act"), by filing a Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware. WHEREAS, the Initial Member intends that the Company be treated as a pass-through entity for federal income tax purposes. NOW, THEREFORE, the Initial Member hereby provides as follows: 1. ORGANIZATION 1.1 NAME The name of the Company will be "Aerospace Display Systems, LLC," The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Board of Directors deems appropriate or advisable. Any Manager may file any fictitious name certificates and similar filings, and any amendments thereto, that such Manager considers appropriate or advisable. 1.2 PURPOSE AND LIMITATIONS The purpose of the Company is to engage in any lawful activity for which a limited liability company may be organized under the Act. The Company shall have full power and authority to do every act and thing necessary or convenient to carry out the purposes for which it was formed. 1.3 MANAGED BY MANAGERS AND BOARD OF DIRECTORS The Company shall be managed by its Managers appointed hereunder, subject to the supervision and powers of the Board of Directors as set forth in this Agreement. -1- 1.4 PRINCIPAL OFFICE The principal office of the Company shall be at 2321 Topaz Drive, Hatfield, Pennsylvania 19440. The Board of Directors may change the principal place of business of the Company to any place from time to time in their discretion. 1.5 AGENT FOR SERVICE OF PROCESS The initial agent for service of process on the Company shall be CT Corporation System. 2. CAPITAL CONTRIBUTIONS 2.1 INITIAL MEMBER DeCrane Aircraft Holdings, Inc. shall be the sole Initial Member. The address, initial Capital Contribution and initial LLC Percentage of the Initial Member are:
- --------------------------------------- --------------------- ------------------ CAPITAL INITIAL LLC MEMBER, ADDRESS CONTRIBUTION PERCENTAGE - --------------------------------------- --------------------- ------------------ DeCrane Aircraft Holdings, Inc. 100% of the capital 100% 2361 Rosecrans Avenue, stock of Aerospace Suite 180 Display Systems, Inc. El Segundo, California 90245 - --------------------------------------- --------------------- ------------------ Totals: 100% - --------------------------------------- --------------------- ------------------
2.2 INITIAL CAPITAL CONTRIBUTION The initial Capital Contribution shall be paid to the Company concurrently with the signing of this Agreement. No Person shall be treated as a Member for any purpose until the Company receives such Person's initial Capital Contribution. 2.3 EXPERTISE Each Member shall make available to the Manager his or its expertise for the benefit of the Company and the Company's business. 2.4 GUARANTEES OF THE COMPANY'S DEBTS If a Member guarantees a debt of the Company and that debt is paid by the Member (or its successors in interest), then such payment shall be considered a loan to the Company and not an additional Capital Contribution. The amount of debt paid by the Member shall be repayable out of the Company's cash and, unless otherwise agreed between the Company and the lending Member, shall bear interest at an annual rate equal to one percentage point above the prime lending rate of Bank of America, NA (or another similar financial institution, if any, designated jointly by such Member and the Managers) in effect at the time the debt is paid. -2- 2.5 ADDITIONAL CAPITAL CONTRIBUTIONS OR LOANS No Member shall be required to contribute or lend any additional funds to the Company. 2.6 LOANS If any Member makes any loan to the Company or advances money on its behalf, the amount of any such loan or advance shall not be treated as a Capital Contribution but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member shall be repayable out of the Company's cash and shall bear interest at an annual rate equal to one points above the prime lending rate of Bank of America, NA (or a similar financial institution acceptable to the lending Member and the Managers) then in effect. 2.7 INVESTMENT REPRESENTATION Each Member represents and warrants to the Company as of the date on which he or it becomes a Member that (a) he or it has a pre-existing personal or business relationship with each other Member, and (b) his or its acquisition of an Interest is made as principal for his or its own account and not with a view to or for sale in connection with any distribution of such Interest. 2.8 TITLE TO PROPERTY All real and personal property owned by the Company shall be owned by it as an entity and, insofar as permitted by applicable law, no Member shall have any ownership interest in such property in his or its individual name or right, and each Member's interest in the Company shall be personal property for all purposes. 2.9 INTERESTS UNCERTIFICATED Interests shall not be evidenced or represented by any instrument or certificate, but rather, their ownership shall be determined by reference to the terms of this Agreement as it may be amended from time to time. 3. DISTRIBUTIONS 3.1 DISTRIBUTIONS GENERALLY The Managers shall cause the Company to make such distributions to the Members in amounts (if any) as may be determined from time to time by the Board of Directors. Any distributions that are made to Members shall be made in the following order and priority: (a) First, to the Members until their Adjusted Capital Contributions are reduced to zero (pro rata among them in proportion to their Adjusted Capital Contributions); and (b) Second, the balance, if any, to the Members in proportion to their LLC Percentages at that time. -3- 3.2 ESTIMATED TAX PAYMENTS If required by applicable law, or permitted by applicable law and approved by the Board of Directors, the Managers may cause the Company to make estimated payments of tax for any Member after consultation with such Member. 3.3 AMOUNTS WITHHELD All amounts withheld pursuant to applicable law with respect to any payment or distribution to the Company or the Members shall be treated as amounts distributed to such Members for all purposes under this Agreement. The Managers shall allocate any such amounts among the Members in accordance with applicable law. 3.4 RETURN OF CAPITAL Except as otherwise provided in this Agreement, no Member shall demand or receive a return of his or its Capital Contribution without the approval of the Board of Directors. Under circumstances requiring a return of any Capital Contribution, no Member shall have the right to receive property other than cash except as may be specifically provided in this Agreement. No Member shall have any personal liability for the repayment of the Capital Contribution of any other Member. 4. FINANCE 4.1 LLC FUNDS All property of the Company in the form of cash not otherwise invested shall be deposited in one or more bank accounts maintained in the name of the Company or the name of the Initial Member, in such financial institutions as the Managers shall determine. The funds of the Company shall not be commingled with the funds of any other Person. The Managers shall deposit into such accounts all revenue and proceeds of or in connection with the Company's business and all amounts received by the Managers from, for, or on behalf of, the Company. 4.2 BOOKS AND RECORDS The Managers shall maintain or cause to be maintained accurate books and records of account of the business of the Company in accordance with generally accepted accounting principles consistently applied, setting forth a true and accurate account of all business transactions arising out of and in connection with the conduct of the Company's business. 4.3 TAX INFORMATION The Managers shall prepare or cause to be prepared, and file, any applicable tax returns required to be filed by the Company consistent with the terms of this Agreement. The Managers shall select an accounting firm to prepare any such tax returns, subject to approval by the Board of Directors. Within 90 days after the end of each taxable year (or such earlier deadlines as may be imposed upon the Members by law), the Managers shall deliver to each Member all tax information regarding the Company necessary for such Member to make all required returns, together with a copy of any federal, state and local income tax or information returns of the Company for the year, and a report listing each material elective adjustment or calculation (if any) made by any Manager with respect to such period pursuant to Article 14 hereof. -4- 4.4 ALLOCATIONS The Profits, Losses and other items of the Company shall be allocated as set forth in Article 14 (Additional Tax Provisions). The Members agree to be bound by these allocations in reporting their shares of the Company's income, loss and other items for income tax purposes. 5. ROLE OF THE MANAGERS 5.1 MANAGERS The Initial Member of the Company has designated the following persons to serve as the initial managers and officers of the Company (herein, "Managers"), until changed pursuant to Sections 5.3 or 5.4: R. Jack DeCrane Chief Executive Officer Richard J. Kaplan Chief Financial Officer and Secretary Andrew Orr President Jeffrey A. Nerland Vice President and Authorized Representative Stephen A. Silverman Assistant Secretary 5.2 AUTHORITY Except to the extent otherwise provided in the Articles of Organization or this Agreement (including the powers reserved to the Board of Directors and the Members), the business and affairs of the Company shall be managed and all corporate powers shall be exercised by the Managers, who shall have all of the authority, rights and powers which may be possessed by managers of a limited liability company under the Act, and may at their discretion, delegate and assign their management duties. The Managers may act jointly or severally in their role as Managers, and the act of any one Manager is the act of all Managers. 5.3 QUALIFICATION AND ELECTION The Managers of the Company shall be selected by the Initial Member. The Initial Member may appoint additional Managers from time to time in its discretion, with such title and such roles as the Initial Member may specify. 5.4 REMOVAL AND RESIGNATION (a) All Managers serve at the pleasure of the Initial Member, and any Manager may be removed with or without cause by the Initial Member, for any reason or no reason, by providing written notice thereof to such Manager. (b) Any Manager may resign at any time by giving written notice to the Company. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -5- 5.5 DUTIES AND OBLIGATIONS OF THE MANAGERS The Managers shall take all actions which may be necessary or appropriate to operate and manage the Company's business, and otherwise directed by the Board of Directors. 5.6 MATTERS REQUIRING UNANIMOUS CONSENT OF THE MEMBERS Notwithstanding any other term of this Agreement, the Managers shall not, without the unanimous written consent of the Members: (a) Do any act in contravention of this Agreement; (b) Do any act which would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement; (c) Sell or otherwise dispose of at one time all or substantially all of the property of the Company, except pursuant to Section 11.3(e) (Winding Up); (d) Amend this Agreement or the Certificate of Formation; (e) Liquidate or dissolve the Company; (f) Admit a new Member; (g) Reduce, increase or alter the outstanding capital of the Company, make any call on capital, issue or redeem Interests, options or other securities of the Company or any subsidiary of the Company; (h) Grant a power of attorney or other delegation of the Members' powers; or (i) Cause the Company to merge or consolidate with any other business. 5.7 MATTERS REQUIRING THE APPROVAL OF THE BOARD OF DIRECTORS Notwithstanding any other term of this Agreement, without first obtaining the approval of a majority of the Board of Directors, at a meeting duly held, or by a written act of such Directors in lieu of a meeting, the Managers shall not: (a) Appoint or remove an auditor; (b) Obtain, incur or suffer an aggregate amount of debt other than in the ordinary course of its business in excess of $100,000; or -6- (c) Cause the Company to acquire shares of or any interest in any corporation or other legal entity, or create any partnership, joint venture or legal entity of which the Company is or will be a partner, member or similar participant. 5.8 INDEMNIFICATION OF MANAGERS 5.8(a) MANDATORY The Company, its receiver or its trustee, shall indemnify, save harmless and pay all judgments and claims against the Managers relating to any liability or damage incurred by reason of any act performed or omitted to be performed by the Managers in connection with the business of the Company, including attorneys' fees incurred by the Managers in connection with the defense of any action based on any such act or omission, which attorneys' fees may be paid as incurred, including all such liabilities under federal and state securities laws (including the Securities Act of 1933, as amended) as permitted by law. 5.8(b) IF MANAGER IS EXONERATED IN THE PROCEEDING In the event of any action by a Member against a Manager, including a derivative suit on behalf of the Company, the Company shall indemnify, save harmless and pay all expenses of such Manager, including attorneys' fees, incurred in the defense of such action, if such Manager is successful in such action. 5.8(c) NO INDEMNIFICATION Notwithstanding the foregoing provisions of this Section 5.8, the Managers shall not be indemnified from any liability for fraud, bad faith, willful misconduct or gross negligence. 5.8(d) LIMITATION Any indemnification under this Section 5.8 shall be paid from and only to the extent of the Company's assets, and no Member shall have personal liability for such indemnification. 6. ROLE OF THE BOARD OF DIRECTORS 6.1 NUMBER AND DESIGNATION OF DIRECTORS The Company shall have a Board of Directors composed of two directors. The Initial Member designates R. Jack DeCrane and Richard J. Kaplan as the initial directors. 6.2 RIGHTS AND POWERS The Board of Directors shall have the powers reserved to it in this Agreement and, in addition, may take any action reserved to the Members in this Agreement or in the Act. 6.3 TERM; REMOVAL Each director serves at the pleasure of the Member who designated him or her pursuant to Section 3.1; and each Member having the right to designate one or -7- more directors may remove and replace such designated directors at will, by notice to the Managers and directors. In the event a Member sells, transfers or loses all of its Interests in the Company, all directors designated by such Member shall be removed from the Board of Directors and their seats shall be declared vacant. 6.4 MEETINGS The Board of Directors shall meet at such times as they may elect from time to time, in each case at the dates and times agreed by the directors; but the Board of Directors shall not be required to meet at any fixed time. The rules set forth in Section 8.2(a), (d), (e), (f) and (g) for the meetings of Members shall also apply to all meetings of the Board of Directors, EXCEPT that there shall be no record date in connection with propositions to be put to a vote at meetings of the Board. 60% of the then-seated directors shall constitute a quorum for any transacting of business by the Board of Directors, and the Board of Directors may not act in the absence of a quorum. Any action approved by a majority of the directors present at a duly called meeting of the Board of Directors at which a quorum is present, or by all of the directors then-seated by written consent without meeting, shall be the action of the Board of Directors. Any action that may be taken at any meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed and delivered to the Managers by directors having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all of the directors entitled to vote thereon were present and voted. 6.5 LIMITED LIABILITY The rights and powers of a member of the Board of Directors, in his capacity as a director, shall not exceed the rights and powers that a member of a manager-managed limited liability company could exercise under the Act. Except to the extent (if any) otherwise required by the Act, no director shall be liable for the debts, liabilities, contracts or any other obligations of the Company. 7. ROLE OF MEMBERS 7.1 RIGHTS AND POWERS The Members shall have the powers reserved to them in this Agreement or in the Act. 7.2 LIMITED LIABILITY Except to the extent (if any) otherwise required in the Act, no Member shall be liable for the debts, liabilities, contracts or any other obligations of the Company. 7.3 NO PARTITION No Member or director shall, either directly or indirectly, take any action to require partition of the Company or of any of its property or to cause the sale of any of such property, nor shall any Manager do so without the approval of the Board of Directors. -8- 8. MEETINGS OF MEMBERS 8.1 REQUIRED MEETINGS The Member or Members shall hold meetings at such times as it or they may unanimously agree in writing, but shall not be required to meet at any fixed time. At any such meeting, Members holding a majority in Interest shall constitute a quorum. No action can be taken by the Members at a meeting after a quorum ceases to be present at the meeting. The failure of the Company to observe any corporate formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company. 8.2 PROCEDURE 8.2(a) LOCATION Unless all of the Members agree otherwise in writing, meetings of Members shall be held at the chief executive office of the Initial Member in California (or at any other place in the County of Los Angeles, State of California, selected by the Board of Directors and specifically identified in the notice of the meeting), so long as the meeting place has adequate facilities to permit participation by telephone conference call. 8.2(b) CALL A meeting of the Members may be called by any Manager, or by any Member or Members representing more than 10% of the Interests for the purpose of addressing any matters on which the Members may vote. 8.2(c) NOTICE (1) Whenever Members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given pursuant to Article 12 (Other Provisions) not less than 10 days nor more than 60 days before the date of the meeting to each Member entitled to vote at the meeting. The notice shall state the place, date, and hour of the meeting and the general nature of the business to be transacted. No other business may be transacted at this meeting. (2) An affidavit of mailing of any notice or report in accordance with the provisions of this paragraph, signed by a Manager, shall be prima facie evidence of the giving of the notice or report. (3) Upon written request to a Manager by any person entitled to call a meeting of Members, the Manager shall immediately cause notice to be given to the Members entitled to vote that a meeting will be held at a time requested by the person calling the meeting, not less than 10 days nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the person entitled to call the meeting may give the notice or, upon the application of that person, the superior court of the county in California in which the principal office of the Company is located shall summarily order the giving of the notice, after notice to the Company affording it an opportunity to be heard. The court may issue any order as may be appropriate, including an order designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice. -9- 8.2(d) ADJOURNED MEETINGS When a meeting of Members is adjourned to another time or place, unless the articles of organization or this Agreement otherwise require and, except as provided in this paragraph, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business that may have been transacted at the original meeting. If the adjournment is for more than 45 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. 8.2(e) WAIVER OF NOTICE The actions taken at any meeting of Members, however called and noticed, and wherever held, have the same validity as if taken at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the Members entitled to vote, not present in person or by proxy, signs a written waiver of notice or consents to the holding of the meeting or approves the minutes of the meeting. All waivers, consents, and approvals shall be filed with the Company records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this title to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted nor the purpose of any meeting of Members need be specified in any written waiver of notice, unless otherwise provided in the articles of organization or operating agreement, except as provided in paragraph (g) below. 8.2(f) PARTICIPATION BY TELEPHONE CONFERENCE CALL Members may participate in a meeting of Members through the use of conference telephones or similar communications equipment, as long as all Members participating in the meeting can hear one another. Participation in a meeting pursuant to this provision constitutes presence in person at that meeting. 8.2(g) NATURE OF PROPOSAL Any action approved at a meeting, other than by unanimous approval of those entitled to vote, shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting (or at the previous meeting) or in any written waiver of notice. 8.2(h) QUORUM A majority in Interest of the Members represented in person or by proxy shall constitute a quorum at a meeting of Members. In the absence of a quorum, any meeting of Members may be adjourned from time to time by the vote of a majority of the Interest represented either in person or by proxy, but no other business may be transacted. -10- 8.2(i) WRITTEN ACTION WITHOUT MEETING Any action that may be taken at any meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed and delivered to the Managers within 60 days of the record date for that action by Members having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all Members entitled to vote thereon were present and voted. (1) Unless the consents of all Members entitled to vote have been solicited in writing, (A) notice of any Member approval of an amendment to the articles of organization or this Agreement, a dissolution of the Company, or a merger of the Company, without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval, and (B) prompt notice shall be given of the taking of any other action approved by Members without a meeting by less than unanimous written consent, to those Members entitled to vote who have not consented in writing. (2) Any Member giving a written consent, or the Member's proxyholder, may revoke the consent by a writing received by the Company prior to the time that written consents of Members having the minimum number of votes that would be required to authorize the proposed action have been filed with the Company, but may not do so thereafter. This revocation is effective upon its receipt at the principal office of the Company in California. 8.2(j) PROXIES The use of proxies in connection with this section will be governed in the same manner as in the case of corporations formed under the Delaware General Corporation Law. 8.2(k) RECORD DATE In order that the Company may determine the Members of record entitled to notices of any meeting or to vote, or entitled to receive any distribution or to exercise any rights in respect of any other lawful action, a Manager, or Members representing more than 10 percent of the interests of Members, may fix, in advance, a record date, that is not more than 60 days nor less than 10 days prior to the date of the meeting and not more than 60 days prior to any other action. If no record date is fixed: (1) The record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (2) The record date for determining Members entitled to give consent to limited liability company action in writing without a meeting shall be the day on which the first written consent is given. (3) The record date for determining Members for any other purpose shall be at the close of business on the day on which the Managers adopt the -11- resolution relating thereto, or the 60th day prior to the date of the other action, whichever is later. (4) The determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment of the meeting unless a Manager or the Members who called the meeting fix a new record date for the adjourned meeting, but the Manager or the Members who called the meeting shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. 8.3 VOTING RIGHTS The Members shall have the right to vote on the matters explicitly set forth in this Agreement or in the Act. Each Member shall have a vote on all matters on which all Members may vote equal to his or its LLC Percentage. With respect to the Members, the term "majority in interest" means more than 50% of the LLC Percentages of all Members. 8.4 RULES OF CONDUCT At each meeting of Members they shall appoint a chair who shall conduct the meeting and who shall appoint a secretary of the meeting to keep minutes and file the minutes with the Company's permanent files. 9. RESTRICTIONS ON TRANSFER 9.1 RESTRICTION ON TRANSFERS Except as otherwise permitted by this Agreement, no Member shall Transfer all or any portion of any Interest. 9.2 PERMITTED TRANSFERS The Initial Member may Transfer its Interest in connection with a sale of substantially all assets of the Initial Member, to the purchaser thereof. The Initial Member may Transfer its Interest for the purpose of providing security for an obligation, by hypothecation, pledge, collateralization or otherwise. Any Interest so held or Transferred shall remain subject to all of the provisions of this Agreement and the Member, both individually and as trustee of the trust, shall continue to be considered a "Member" for purposes of this Agreement. 9.3 INVOLUNTARY TRANSFER Any proposed Transfer of an Interest that is required by law pursuant to any insolvency proceeding of a Member shall be subject to the terms and conditions of this Agreement, including Section 9.7. 9.4 PROHIBITED TRANSFERS Any purported Transfer of an Interest that is not permitted by this Agreement shall be null and void and of no effect whatever; PROVIDED that if the Company is required to recognize a Transfer that is not so permitted, the Interest Transferred shall be strictly limited to the transferor's rights to allocations and distributions under this -12- Agreement with respect to the Transferred Interest, which allocations and distributions may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations, or liabilities for damages that the transferor or transferee of such Interest may have to the Company. In the case of a Transfer or attempted Transfer that is not permitted by this Agreement, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all costs, liabilities and damages that any of such indemnified Persons may incur (including additional tax liability and lawyers' fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce this Section 9.4, including such indemnity. 9.5 GENERAL TRANSFER PROVISIONS (a) All Transfers shall be by instrument in form and substance satisfactory to counsel for the Company and shall contain an expression by the transferee of his or its intention to accept the Transfer and to adopt and be bound by all of the provisions of this Agreement, and shall provide for the payment by the transferor of all reasonable expenses incurred by the Company in connection with such Transfer, including the necessary amendments to this Agreement to reflect such Transfer. The transferor shall sign and acknowledge all such instruments, in form and substance reasonably satisfactory to the Company's counsel, as may be necessary or desirable to effect such Transfer. (b) The Company shall not dissolve or terminate upon the admission of any new Member or upon any permitted Transfer. Each Member hereby waives any right such Member may have to dissolve, liquidate or terminate the Company in any such event. (c) This Section 9.5 imposes additional restrictions on the Transfer of Interests and does not permit any Transfer not otherwise permitted by this Agreement. 9.6 COMPLIANCE Notwithstanding anything to the contrary in this Agreement, at law or in equity, no Member shall Transfer or otherwise deal with any Interest in a way that would cause a default under any material agreement to which the Company is a party or by which it is bound. 9.7 ADMISSION OF MEMBERS No new Members shall be admitted without the approval required by Section 5.6. A transferee of an Interest shall not be admitted as a Member without the approval required by Section 5.6, PROVIDED that if the transferee is already a Member at the time of the transfer and the transfer is permitted by this Agreement, then the transferee shall have all rights of a Member with respect to the transferred Interest. 9.8 RIGHTS OF UNADMITTED ASSIGNEES Notwithstanding any other provision of this Agreement, a Person who acquires an Interest but who is not admitted as a Member of the Company pursuant to this Agreement shall be entitled only to receive, to the extent assigned, the distributions and the allocations to which the assignor would be entitled under this Agreement, but -13- shall have no right to vote or to participate in the management and affairs of the Company, or to exercise any of the rights of a Member. 10. [DELIBERATELY OMITTED.] 11. DISSOLUTION 11.1 LIQUIDATING EVENTS The Company shall dissolve and commence winding up and liquidating upon the first to occur of any of the following ("Liquidating Events"): (a) The decision of all of the Members to dissolve, wind up and liquidate the Company; (b) The sale or transfer by the Company of all or substantially all of its assets; (c) The occurrence of any other event that makes it unlawful or impossible to carry on the business of the Company; or (d) Entry of a decree of judicial dissolution pursuant to the Act. 11.2 CONTINUING LIMITED LIABILITY COMPANY Notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Liquidating Event. The withdrawal, resignation or retirement of any Member which the Company is required by proper authority to recognize, or the death, expulsion, bankruptcy or dissolution of any Member or the occurrence of any other event which terminates the continued membership in the Company of any Member shall not be a liquidating event. 11.3 WINDING UP Upon the occurrence of a Liquidating Event: (a) The Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members; (b) No Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company's business and affairs; (c) A person, who may but need not be a Member, shall be unanimously selected by the Members (or by arbitration pursuant to the terms hereof if agreement cannot be reached) as the Company's liquidator, and shall be responsible for overseeing the winding up and dissolution of the Company and shall take full account of the Company's liabilities and assets; (d) No Manager shall receive any additional compensation for any services performed pursuant to this Section 11.3; -14- (e) Unless all Members agree upon a sale among themselves or a division in kind of assets, the assets of the Company shall be sold in the usual course of business using reasonable business judgment; and (f) If any property of the Company is to be distributed in kind upon the liquidation of the Company, such property shall be liquidated as promptly as is consistent with obtaining its fair value. 11.4 APPLICATION OF PROCEEDS The liquidation proceeds shall be applied and distributed, to the extent sufficient to do so, in the following order: First, to the payment and discharge of all of the Company's debts and liabilities to creditors other than the Members; Second, to the payment and discharge of all of the Company's debts and liabilities to the Members; and The balance, if any, to the Members in accordance with their Capital Accounts, after giving effect to all contributions, distributions and allocations for all periods. Any in-kind distributions of property of the Company shall be made among the Members pro rata in proportion with their relative Capital Accounts. 11.5 NEGATIVE CAPITAL ACCOUNTS If a Liquidation Event and a Tax Liquidation both occur, then: Distributions shall be made pursuant to this Article 11 to the Members who have positive Capital Accounts; and (a) If any Member has a deficit balance in his or its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), then such Member shall have no obligation to contribute to the capital of the Company and the deficit shall not be considered a debt owed to the Company or any other Person for any purpose whatsoever; and (b) Section 14.19 (Negative Capital Accounts: Tax Issues) shall apply. 11.6 DISCRETIONARY WITHHOLDING AND DISTRIBUTIONS With the approval of the Board of Directors, a pro rata portion of the distributions that would otherwise be made to the Members pursuant to this Article 11 may be: (a) Distributed to a trust established for the benefit of the Members for the purposes of liquidating property of the Company, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company or of the Managers arising out of or in connection with the Company, PROVIDED -15- that assets of any such trust shall be distributed to the Members from time to time, in the reasonable discretion of the liquidator appointed hereunder, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Members pursuant to this Agreement; or (b) Withheld to provide a reasonable reserve for liabilities (contingent or otherwise) of the Company and to reflect the unrealized portion of any installment obligations owed to the Company, PROVIDED that such withheld amounts shall be distributed to the Members as soon as practicable. 11.7 RIGHTS OF MEMBERS Except as otherwise provided in this Agreement, the Members shall look solely to the assets of the Company for the return of their Capital Contributions and no Member shall have any right or power to demand or receive property other than cash from the Company. No Member shall have priority over any other Member as to the return of his or its Capital Contribution, distributions or allocations. 11.8 NOTICE OF DISSOLUTION If a Liquidating Event occurs, the Company shall, within 60 days after the occurrence, provide written notice of the occurrence to each of the Members and to all known creditors and claimants whose names appear on the records of the Company. 11.9 CERTIFICATES OF DISSOLUTION Upon the dissolution of the Company, the liquidator appointed hereunder and, to the extent required, any other party hereto or appointed hereunder, shall promptly sign and cause to be filed certificates of dissolution in accordance with the Act and the laws of any other states or jurisdictions in which the Company has filed its Articles of Organization or qualified to transact intrastate business. 12. OTHER PROVISIONS 12.1 ENTIRE AGREEMENT This Agreement, which includes material provisions on the schedules hereto, each of which is incorporated in full herein, constitutes the entire agreement pertaining to the organization of the Company and completely supersedes all other agreements and all drafts, understandings, negotiations and discussions, whether oral or written, among the parties pertaining to the subject matter of this Agreement. 12.2 AMENDMENTS No amendment or waiver of any provision of this Agreement shall be effective unless and until an instrument reflecting the amendment or waiver has received the approval of the Members. The waiver by any party of a breach or default of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or default. A party's failure either to insist upon any other party's strict performance of any provision of this Agreement or to exercise any of the party's rights or remedies under this -16- Agreement shall not constitute a waiver of any default by the other party or of any right or remedy of the non-defaulting party. 12.3 GOVERNING LAW Delaware law shall govern this Agreement, any agreement to amend or adopt this Agreement, and all disputes arising hereunder. 12.4 SEVERABLE PROVISIONS The provisions of this Agreement are severable, and if any provision is determined to be illegal or otherwise unenforceable, in whole or in part, then the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable and shall be construed as closely as possible to their original meanings. 12.5 BINDING EFFECT Except as otherwise provided in this Agreement, every provision of this Agreement shall bind and benefit the Members and their respective heirs, legatees, legal representatives, successors, transferees and assigns. 12.6 PARTIES IN INTEREST; THIRD PARTIES All references in this Agreement to "parties" refer to the parties to this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer on any Person or entity other than a party any right or remedy under or by reason of this Agreement. The provisions of this Agreement are not intended to benefit any creditor or other Person (other than a Member in his or its capacity as a Member) to whom any debts, liabilities or obligations are owed or who otherwise has a claim against the Company or any Member; and no such creditor or other Person shall obtain any right under this Agreement against the Company or any Member by reason of any such debt, liability or obligation, or otherwise. 13. DEFINITIONS Capitalized words and phrases used in this Agreement have the following meanings 13.1 "ADJUSTED CAPITAL CONTRIBUTIONS" means, as of any day with respect to a Member, such Member's Capital Contributions, adjusted as follows: (a) Increased by the amount of any Company liabilities which, in connection with distributions to such Member pursuant to Section 3.1 (Distributions Generally) and 11.4 (Dissolution/Application of Proceeds) are assumed by such Member or are secured by any property of the Company distributed to such Member; and (b) Reduced by the amount of cash and the Gross Asset Value (as defined in Section 14.21) of any property of the Company distributed to such Member pursuant to Sections 3.1 (Distributions Generally) and 11.4 (Dissolution/Application of -17- Proceeds) and the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company. (c) If such Member Transfers all or any portion of his Interest in accordance with the terms of this Agreement, his transferee shall succeed to his or its Adjusted Capital Contributions to the extent it relates to the Transferred Interest. 13.2 "AGREEMENT" means this Operating Agreement, as amended from time to time. 13.3 "BOARD OF DIRECTORS" means the board established pursuant to Article 6 (Role of the Board of Directors). 13.4 "BUSINESS DAY" means a day that is not a Saturday, Sunday or public holiday in the place to which the notice, consent or other communication is sent. 13.5 "CAPITAL ACCOUNT" means, with respect to any Member, the Capital Account maintained for such Person in accordance with the following provisions and Section 14.21: (a) To each Person's Capital Account there shall be credited such Person's Capital Contribution, such Person's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), and the amount of any of the Company's liabilities assumed by such Person or which are secured by any property of the Company distributed to such Person. (b) To each Person's Capital Account there shall be debited the amount of money and the Gross Asset Value of any property distributed to such Person pursuant to any provision of this Agreement, such Person's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Sections 14.4 through 14.12 and the amount of any liabilities of such Person assumed by the Company or which are secured by any property contributed by such Person to the Company. (c) If any Interest is Transferred in accordance with this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Interest. 13.6 "CAPITAL CONTRIBUTION" means, with respect to any Member, the amount of money and the gross fair market value of any property (other than money) contributed pursuant to this Agreement to the controlled by such a person or entity. 13.7 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. -18- 13.8 "COMPANY" means the California limited liability company created and pursuant to this Agreement and the limited liability company continuing the business in the event of dissolution as provided in Section 11.2 (Dissolution). 13.9 "INITIAL MEMBER" has the meaning set forth for such term in the introductory paragraph of this Agreement. 13.10 "INTEREST" means, with respect to any Member, the ownership rights of the Member in the Company, including the right to receive distributions from the Company. In the event any Interest is Transferred in accordance with the provisions of this Agreement, the transferee of such interest shall succeed to the Interest of his or its transferor to the extent it is Transferred. 13.11 "LIQUIDATING EVENT" has the meaning set forth in Section 11.1. 13.12 "LLC PERCENTAGE" means, with respect to any Member at any time, the proportion (expressed as a percentage) of such Member's Interests at such time to the aggregate number of all Interests then outstanding. If any Interest is Transferred in accordance with the provisions of this Agreement, the transferee of such Interest shall succeed to the portion of the transferor's LLC Percentage represented by the Transferred Interest. 13.13 "MANAGERS" means the Persons serving as managers of the Company within the meaning of the Act and pursuant to the terms and conditions of this Agreement. 13.14 "MEMBER" means any Person who is (a) the Initial Member, as designated in Section 2.1, or subsequently admitted as a Member pursuant to this Agreement, AND (b) who owns an Interest. "Members" means all such Persons. 13.15 "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (including any beneficiary of the trust), unincorporated organization, or government or any agency or political subdivision. 13.16 "PROFITS" and "LOSSES" means, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Section 14.21. -19- 13.17 "TRANSFER" (a) means, as a noun, any voluntary or involuntary assignment, transfer, sale, pledge, hypothecation or other disposition, and, as a verb, voluntarily or involuntarily to assign, transfer, sell, pledge, hypothecate or otherwise dispose of or to obtain a charging order against. A "Transfer" includes a gift or transmutation of an Interest into another type of property interest or into an Interest jointly owned with another Person, including a gift or transmutation of a separate property Interest into a community or other joint property Interest with a spouse or another Person, or the partition of a community or other joint property Interest (whether voluntarily, pursuant to a divorce proceeding or otherwise). 14. ADDITIONAL TAX PROVISIONS 14.1 TAX CLASSIFICATION The Members intend that the Company shall be classified as a partnership for federal income tax purposes under Code Section 7701(a)(2) and the corresponding provisions, if any, of state and local law. 14.2 PROFITS After giving effect to the special allocations in Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Profits for any fiscal year or other period shall be allocated to the Members in proportion to their LLC Percentages. 14.3 LOSSES AND OTHER ITEMS After giving effect to the special allocations in Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Losses for any fiscal year or other period shall be allocated in the following order and priority: (a) Except as provided in Section 14.3(b), Losses shall be allocated to the Members in proportion to their LLC Percentages. (b) The Losses allocated pursuant to Section 14.3(a) shall not exceed the maximum amount of Losses that can be so allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any fiscal year. If some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 14.3(a), the limitation set forth in this Section 14.3(b) shall be applied on a Member-by-Member basis so as to allocate the maximum permissible Losses to each Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations. Except as otherwise provided in this Agreement, all items of the Company income, gain, loss, deduction, credit and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Losses for the period. 14.4 MINIMUM GAIN CHARGEBACK Except as provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Article 14, if there is a net decrease in Minimum Gain during any fiscal year of the Company, each Member shall be specially -20- allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to the portion of such Member's share of the net decrease in Minimum Gain, determined in accordance with Section 1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant to such Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 14.4 is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently with it. 14.5 MEMBER NONRECOURSE DEBT MINIMUM GAIN Except as provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article 14 except Section 14.4, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Company fiscal year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to the portion of such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant to such Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 14.5 is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently with it. 14.6 QUALIFIED INCOME OFFSET In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, PROVIDED that an allocation pursuant to this Section 14.6 shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 14.6 have been tentatively made as if this Section 14.6 were not in the Agreement. 14.7 GROSS INCOME ALLOCATION In the event any Member has a deficit Capital Account at the end of any Company fiscal year which is in excess of the sum of (1) the amount such Member is obligated to restore pursuant to any provision of this Agreement and (2) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, PROVIDED that an allocation pursuant to this Section 14.7 shall be made only if and to the extent that such Member would have a deficit Capital Account in -21- excess of such sum after all other allocations provided for in Sections 14.4 through 14.10 have been tentatively made as if this Section 14.7 were not in the Agreement. 14.8 NONRECOURSE DEDUCTIONS Nonrecourse Deductions for any fiscal year or other period shall be specially allocated among the Members in proportion to their LLC Percentages. 14.9 MEMBER NONRECOURSE DEDUCTIONS Any Member Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(1) of the Regulations. 14.10 CODE SECTION 754 ADJUSTMENTS To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) of the Regulations, to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of his or its interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Interests if such Section 1.704-1(b)(2)(iv)(m)(2) applies, or, if such Section 1.704-1(b)(2)(m)(4) applies, to the Member to whom such distribution was made. 14.11 CURATIVE ALLOCATIONS The allocations in the last sentence of the first paragraph of Section 14.3 (Losses and Other Items) and Sections 14.4 (Minimum Gain Chargeback), 14.5 (Member Nonrecourse Debt Minimum Gain), 14.6 (Qualified Income Offset), 14.7 (Gross Income Allocation), 14.8 (Nonrecourse Deductions), 14.9 (Member Nonrecourse Deductions) and 14.10 (Code Section 754 Adjustments) (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 14.11. Therefore, notwithstanding any other provision of this Article 14 (other than the Regulatory Allocations), the Managers shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner they determine appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 14.2. In exercising their discretion under this Section 14.11, the Managers shall take into account future Regulatory Allocations under Sections 14.4 and 14.5 that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 14.8 and 14.9. -22- 14.12 ORDER OF APPLICATION Sections 14.4 through 14.11 shall be applied in the order in which they are set forth in this Agreement. 14.13 ALLOCATION METHOD For purposes of determining the Profits, Losses or any other items allocable to any period, Profits, Losses and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Managers using any permissible method under Code Section 706 and the Regulations under it. 14.14 EXCESS NONRECOURSE LIABILITIES Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Section 1.752-3(a)(3) of the Regulations, the Members' interests in the Company's Profits are in proportion to their LLC Percentages. 14.15 SOURCE OF DISTRIBUTIONS To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Managers shall endeavor to treat cash distributions to Members as having been made from the proceeds of Nonrecourse Liabilities or Member Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Member. 14.16 TAX ALLOCATIONS: CODE SECTION 704(c) In accordance with Code Section 704(c), income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 14.22(d)(1)). If the Gross Asset Value of any Company asset is adjusted pursuant to Section 14.22(d)(3), subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations under it. Any elections or other decisions relating to such allocations shall be made by the Managers in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 14.16 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Person's Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement. 14.17 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT TO TRANSFERRED INTERESTS If any Interest is Transferred during any accounting period in compliance with Article 8 (Restrictions on Transfer), then Profits, Losses, each item of Profit and Loss -23- and all other items attributable to the Transferred Interest for such period shall be divided and allocated between the transferor and the transferee by taking into account their varying Interests during the period in accordance with Code Section 706(d), using any conventions permitted by law and selected by the Managers. All distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee. 14.18 TAX CHARACTERIZATION OF PAYMENTS TO A SELLING PARTNER The Managers shall, to the greatest extent allowed by law, determine the tax classification of all payments by the Company or a Member to a Selling Member. The parties intend that such payments shall, to the extent possible, be deductible to the Company and ordinary income to the Selling Member. 14.19 NEGATIVE CAPITAL ACCOUNTS: TAX ISSUES When a Tax Liquidation occurs, any distributions required by Section 11.5((a)) shall be made in compliance with Section 1.704-1(b)(2)(ii)(b)(2) of the Regulations. 14.20 TAX MATTERS PARTNER The Initial Member shall be the Person designated to receive all notices from the Internal Revenue Service and other tax authorities that pertain to the tax affairs of the Company, and shall be the "tax matters partner" for purposes of Code Sections 6221 through 6233. Each party agrees to be bound by those Code Sections. The "tax matters partner" shall provide to each other Member in a timely manner the notices required to be provided by Section 301.6223(g)-1T of the Regulations and the corresponding provisions of state tax law. The "tax matters partner" shall be reimbursed by the Company for expenses reasonably incurred in connection with his work as "tax matters partner." The "tax matters partner" shall not be otherwise compensated for such work; and if he or it resigns as "tax matters partner" or ceases to be a Member, then the Members shall select another "tax matters partner." 14.21 TAX DEFINITIONS 14.21(a) "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: (1) Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (2) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. -24- The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently with it. 14.21(b) CAPITAL ACCOUNTS: TAX ISSUES In determining the amount of any liability for purposes of Sections 13.1(a), 13.1(b), 13.5(a) and 13.5(b) there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The provisions of Section 13.5 (Capital Account) and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Regulations, and shall be interpreted and applied in a manner consistent with it. If the Managers determine that to comply with the Regulations it is prudent to modify the manner in which the Capital Accounts, or any debits or credits to the Capital Accounts (including debits or credits relating to liabilities which are secured by property contributed to or distributed from the Company or which are assumed by the Company or Members), are computed, they may make such modification, PROVIDED that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Article 10 (Dissolution) upon the dissolution of the Company. The Managers also shall (a) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Section 1.704-1(b)(2)(iv)(g) of the Regulations, and (b) make any appropriate modifications if unanticipated events might otherwise cause this Agreement not to comply with Section 1.704-1(b) of the Regulations. 14.21(c) "DEPRECIATION" means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; PROVIDED, HOWEVER, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managers. 14.21(d) "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: -25- (1) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the contributing Member and the Company; (2) The Gross Asset Value of any the Company asset distributed to any Member shall be the asset's gross fair market value on the date of distribution; (3) The Gross Asset Values of all the Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Managers, as of the following times: (a) the acquisition of an additional Interest by any new or existing Member in exchange for more than a DE MINIMIS Capital Contribution; (b) the distribution by the Company to a Member of more than a DE MINIMIS amount of property as consideration for an interest in the Company if such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company; and (c) the Tax Liquidation of the Company; PROVIDED, HOWEVER that adjustments pursuant to clauses (a) and (b) above shall be made only if the Managers reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. (4) The Gross Asset Values of the property of the Company shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations and Sections 14.10 (Code Section 754 Adjustments) and 14.22(j)(6) (Profits and Losses); PROVIDED, HOWEVER, that Gross Asset Values shall not be adjusted pursuant to this Section 14.22(d)(4) to the extent the Managers determine that an adjustment pursuant to Section 14.22(d) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 14.22(d)(4). (5) After the Gross Asset Value of an asset has been determined or adjusted pursuant to Section 14.22(d)(1), (3) or (4), such Gross Asset Value shall be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 14.21(e) "MEMBER NONRECOURSE DEBT" has the meaning set forth in Section 1.704-2(b)(4) of the Regulations. 14.21(f) "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to each Member Nonrecourse Debt, equal to the Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. -26- 14.21(g) "MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. 14.21(h) "MINIMUM GAIN" has the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. 14.21(i) "NONRECOURSE DEDUCTIONS" has the meaning set forth in Section 1.704-2(b)(1) of the Regulations. 14.21(j) "NONRECOURSE LIABILITY" has the meaning set forth in Section 1.704-2(b)(3) of the Regulations. 14.21(k) "PROFITS" and "LOSSES" under Section 13.16 shall be determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (1) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 14.22(j) shall be added to such taxable income or loss; (2) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken into account in computing Profits or Losses pursuant to this Section 14.22(j) shall be subtracted from such taxable income or loss; (3) If the Gross Asset Value of any Company asset is adjusted pursuant to Section 14.22(d)(3) or (4), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (4) Gain or loss resulting from any disposition of property of the Company with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (5) In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period, computed in accordance with Section 14.22(c) (Depreciation); -27- (6) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required by Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and (7) Notwithstanding any other provision of this Section 14.22(j), any items which are specially allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application) shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss, or deduction available to be specifically allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), shall be determined by applying rules analogous to those set forth in this Section 14.22(j). 14.21(l) "REGULATIONS" means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time. 14.21(m) "TAX LIQUIDATION" means the liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations. -28- EX-3.19-1 4 ex-3_191.txt EXHIBIT 3.19.1 EXHIBIT 3.19.1 CERTIFICATE OF FORMATION OF CUSTOM WOODWORK & PLASTICS, LLC 1. The name of the limited liability company is Custom Woodwork & Plastics, LLC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of Custom Woodwork & Plastics, LLC on June 28, 2000. /s/ ------------------------------------ Sonji Sanders Organizer 1 STATE OF DELAWARE CERTIFICATE OF MERGER OR CONSOLIDATION OF DOMESTIC CORPORATION AND LIMITED LIABILITY COMPANY Pursuant to Title 8, Section 264(c) of the Delaware General Corporation Law, the undersigned surviving limited liability company has executed the following Certificate of Merger: FIRST: The name of the surviving limited liability company is Custom Woodwork & Plastics, LLC, a Delaware limited liability company; and the name of the corporation being merged into this surviving limited liability company is Custom Woodwork & Plastics, Inc., a Delaware corporation, a wholly-owned subsidiary of the surviving limited liability company. SECOND: The Agreement of Merger has been approved, adopted, certified, executed and acknowledged by the surviving limited liability company and the merging corporation in accordance with Title 8, Section 264(c) of the Delaware General Corporation Law. THIRD: The name of the surviving limited liability company is: CUSTOM WOODWORK & PLASTICS, LLC. The certificate of formation and the limited liability company operating agreement of Custom Woodwork & Plastics, LLC will continue in effect, as the certificate of formation and the limited liability company operating agreement of the surviving limited liability company. FOURTH: The merger is to become effective upon the filing of this certificate, subject to the provisions of the Delaware General Corporation Law. FIFTH: The Agreement of Merger is on file at Custom Woodwork & Plastics, LLC, 166 Pine Barren Road, Savannah, Georgia 31322, the principal place of business of the surviving limited liability company. SIXTH: A copy of the Agreement of Merger will be furnished by the surviving limited liability company on request, without cost, to any member of the surviving limited liability company or stockholder of the merging corporation. 2 SEVENTH: The surviving limited liability company agrees that it may be served with process in the State of Delaware in any proceeding for enforcement of any obligation of any constituent corporation or limited liability company of Delaware, as well as for enforcement of any obligation of the surviving limited liability company arising from this merger, including any suit or other proceeding to enforce the rights of any stockholders as determined in appraisal proceedings pursuant to the provisions of Section 262 of the Delaware General Corporation Law, and irrevocably appoints the Secretary of State of Delaware as its agent to accept service of process in any such suit or proceeding. The Secretary of State shall mail any such process to the surviving limited liability company at Custom Woodwork & Plastics, LLC, 166 Pine Barren Road, Savannah, Georgia 31322. IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by an authorized officer, the 27th day of July, 2000. CUSTOM WOODWORK & PLASTICS, LLC /s/ BY:________________________________ NAME: Richard J. Kaplan TITLE: Chief Financial Officer 3 EX-3.19-2 5 ex-3_192.txt EXHIBIT 3.19.2 EXHIBIT 3.19.2 LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF CUSTIOM WOODWORK & PLASTICS, LLC This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this "Agreement") of Custom Woodwork & Plastics, LLC, a limited liability company organized under the laws of Delaware (the "Company"), is made and entered into effective as of July 1, 2000 by DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Initial Member"). Capitalized words and phrases used in this Agreement and not otherwise defined here are used as defined in Article 13 or in Section 14.21 (Tax Definitions). RECITALS WHEREAS, the Initial Member formed the Company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., as amended from time to time (the "Act"), by filing a Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware. WHEREAS, the Initial Member intends that the Company be treated as a pass-through entity for federal income tax purposes. NOW, THEREFORE, the Initial Member hereby provides as follows: 1. ORGANIZATION 1.1 NAME The name of the Company will be "Custom Woodwork & Plastics, LLC." The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Board of Directors deems appropriate or advisable. Any Manager may file any fictitious name certificates and similar filings, and any amendments thereto, that such Manager considers appropriate or advisable. 1.2 PURPOSE AND LIMITATIONS The purpose of the Company is to engage in any lawful activity for which a limited liability company may be organized under the Act. The Company shall have full power and authority to do every act and thing necessary or convenient to carry out the purposes for which it was formed. 1.3 MANAGED BY MANAGERS AND BOARD OF DIRECTORS The Company shall be managed by its Managers appointed hereunder, subject to the supervision and powers of the Board of Directors as set forth in this Agreement. 1 1.4 PRINCIPAL OFFICE The principal office of the Company shall be at 166 Pine Barren Road, Savannah, Georgia 31322. The Board of Directors may change the principal place of business of the Company to any place from time to time in their discretion. 1.5 AGENT FOR SERVICE OF PROCESS The initial agent for service of process on the Company shall be CT Corporation System. 2. CAPITAL CONTRIBUTIONS 2.1 INITIAL MEMBER DeCrane Aircraft Holdings, Inc. shall be the sole Initial Member. The address, initial Capital Contribution and initial LLC Percentage of the Initial Member are:
MEMBER, ADDRESS CAPITAL INITIAL LLC CONTRIBUTION PERCENTAGE - -------------------------------- ------------------------- ------------- DeCrane Aircraft Holdings, Inc. 100% of the capital 100% 2361 Rosecrans Avenue, stock of Custom Suite 180 Woodwork & Plastics El Segundo, California 90245 (f/k/a CWP Acquisition, Inc.) ------------- Totals: 100%
2.2 INITIAL CAPITAL CONTRIBUTION The initial Capital Contribution shall be paid to the Company concurrently with the signing of this Agreement. No Person shall be treated as a Member for any purpose until the Company receives such Person's initial Capital Contribution. 2.3 EXPERTISE Each Member shall make available to the Manager his or its expertise for the benefit of the Company and the Company's business. 2.4 GUARANTEES OF THE COMPANY'S DEBTS If a Member guarantees a debt of the Company and that debt is paid by the Member (or its successors in interest), then such payment shall be considered a loan to the Company and not an additional Capital Contribution. The amount of debt paid by the Member shall be repayable out of the Company's cash and, unless otherwise agreed between the Company and the lending Member, shall bear interest at an annual rate equal to one percentage point above the prime lending rate of Bank of America, NA (or another similar financial institution, if any, designated jointly by such Member and the Managers) in effect at the time the debt is paid. 2 2.5 ADDITIONAL CAPITAL CONTRIBUTIONS OR LOANS No Member shall be required to contribute or lend any additional funds to the Company. 2.6 LOANS If any Member makes any loan to the Company or advances money on its behalf, the amount of any such loan or advance shall not be treated as a Capital Contribution but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member shall be repayable out of the Company's cash and shall bear interest at an annual rate equal to one points above the prime lending rate of Bank of America, NA (or a similar financial institution acceptable to the lending Member and the Managers) then in effect. 2.7 INVESTMENT REPRESENTATION Each Member represents and warrants to the Company as of the date on which he or it becomes a Member that (a) he or it has a pre-existing personal or business relationship with each other Member, and (b) his or its acquisition of an Interest is made as principal for his or its own account and not with a view to or for sale in connection with any distribution of such Interest. 2.8 TITLE TO PROPERTY All real and personal property owned by the Company shall be owned by it as an entity and, insofar as permitted by applicable law, no Member shall have any ownership interest in such property in his or its individual name or right, and each Member's interest in the Company shall be personal property for all purposes. 2.9 INTERESTS UNCERTIFICATED Interests shall not be evidenced or represented by any instrument or certificate, but rather, their ownership shall be determined by reference to the terms of this Agreement as it may be amended from time to time. 3. DISTRIBUTIONS 3.1 DISTRIBUTIONS GENERALLY The Managers shall cause the Company to make such distributions to the Members in amounts (if any) as may be determined from time to time by the Board of Directors. Any distributions that are made to Members shall be made in the following order and priority: (a) First, to the Members until their Adjusted Capital Contributions are reduced to zero (pro rata among them in proportion to their Adjusted Capital Contributions); and (b) Second, the balance, if any, to the Members in proportion to their LLC Percentages at that time. 3 3.2 ESTIMATED TAX PAYMENTS If required by applicable law, or permitted by applicable law and approved by the Board of Directors, the Managers may cause the Company to make estimated payments of tax for any Member after consultation with such Member. 3.3 AMOUNTS WITHHELD All amounts withheld pursuant to applicable law with respect to any payment or distribution to the Company or the Members shall be treated as amounts distributed to such Members for all purposes under this Agreement. The Managers shall allocate any such amounts among the Members in accordance with applicable law. 3.4 RETURN OF CAPITAL Except as otherwise provided in this Agreement, no Member shall demand or receive a return of his or its Capital Contribution without the approval of the Board of Directors. Under circumstances requiring a return of any Capital Contribution, no Member shall have the right to receive property other than cash except as may be specifically provided in this Agreement. No Member shall have any personal liability for the repayment of the Capital Contribution of any other Member. 4. FINANCE 4.1 LLC FUNDS All property of the Company in the form of cash not otherwise invested shall be deposited in one or more bank accounts maintained in the name of the Company or the name of the Initial Member, in such financial institutions as the Managers shall determine. The funds of the Company shall not be commingled with the funds of any other Person. The Managers shall deposit into such accounts all revenue and proceeds of or in connection with the Company's business and all amounts received by the Managers from, for, or on behalf of, the Company. 4.2 BOOKS AND RECORDS The Managers shall maintain or cause to be maintained accurate books and records of account of the business of the Company in accordance with generally accepted accounting principles consistently applied, setting forth a true and accurate account of all business transactions arising out of and in connection with the conduct of the Company's business. 4.3 TAX INFORMATION The Managers shall prepare or cause to be prepared, and file, any applicable tax returns required to be filed by the Company consistent with the terms of this Agreement. The Managers shall select an accounting firm to prepare any such tax returns, subject to approval by the Board of Directors. Within 90 days after the end of each taxable year (or such earlier deadlines as may be imposed upon the Members by law), the Managers shall deliver to each Member all tax information regarding the Company necessary for such Member to make all required returns, together with a copy of any federal, state and local income tax or information returns of the Company for the year, and a report listing each material elective adjustment or calculation (if any) made by any Manager with respect to such period pursuant to Article 14 hereof. 4 4.4 ALLOCATIONS The Profits, Losses and other items of the Company shall be allocated as set forth in Article 14 (Additional Tax Provisions). The Members agree to be bound by these allocations in reporting their shares of the Company's income, loss and other items for income tax purposes. 5. ROLE OF THE MANAGERS 5.1 MANAGERS The Initial Member of the Company has designated the following persons to serve as the initial managers and officers of the Company (herein, "Managers"), until changed pursuant to Sections 5.3 or 5.4: R. Jack DeCrane Chief Executive Officer Richard J. Kaplan Chief Financial Officer and Secretary Joseph S. Wigley. President Jeffrey A. Nerland Vice President and Authorized Representative Stephen A. Silverman Assistant Secretary 5.2 AUTHORITY Except to the extent otherwise provided in the Articles of Organization or this Agreement (including the powers reserved to the Board of Directors and the Members), the business and affairs of the Company shall be managed and all corporate powers shall be exercised by the Managers, who shall have all of the authority, rights and powers which may be possessed by managers of a limited liability company under the Act, and may at their discretion, delegate and assign their management duties. The Managers may act jointly or severally in their role as Managers, and the act of any one Manager is the act of all Managers. 5.3 QUALIFICATION AND ELECTION The Managers of the Company shall be selected by the Initial Member. The Initial Member may appoint additional Managers from time to time in its discretion, with such title and such roles as the Initial Member may specify. 5.4 REMOVAL AND RESIGNATION (a) All Managers serve at the pleasure of the Initial Member, and any Manager may be removed with or without cause by the Initial Member, for any reason or no reason, by providing written notice thereof to such Manager. (b) Any Manager may resign at any time by giving written notice to the Company. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5 5.5 DUTIES AND OBLIGATIONS OF THE MANAGERS The Managers shall take all actions which may be necessary or appropriate to operate and manage the Company's business, and otherwise directed by the Board of Directors. 5.6 MATTERS REQUIRING UNANIMOUS CONSENT OF THE MEMBERS Notwithstanding any other term of this Agreement, the Managers shall not, without the unanimous written consent of the Members: (a) Do any act in contravention of this Agreement; (b) Do any act which would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement; (c) Sell or otherwise dispose of at one time all or substantially all of the property of the Company, except pursuant to Section 11.3(e) (Winding Up); (d) Amend this Agreement or the Certificate of Formation; (e) Liquidate or dissolve the Company; (f) Admit a new Member; (g) Reduce, increase or alter the outstanding capital of the Company, make any call on capital, issue or redeem Interests, options or other securities of the Company or any subsidiary of the Company; (h) Grant a power of attorney or other delegation of the Members' powers; or (i) Cause the Company to merge or consolidate with any other business. 5.7 MATTERS REQUIRING THE APPROVAL OF THE BOARD OF DIRECTORS Notwithstanding any other term of this Agreement, without first obtaining the approval of a majority of the Board of Directors, at a meeting duly held, or by a written act of such Directors in lieu of a meeting, the Managers shall not: (a) Appoint or remove an auditor; (b) Obtain, incur or suffer an aggregate amount of debt other than in the ordinary course of its business in excess of $50,000; or 6 (c) Cause the Company to acquire shares of or any interest in any corporation or other legal entity, or create any partnership, joint venture or legal entity of which the Company is or will be a partner, member or similar participant. 5.8 INDEMNIFICATION OF MANAGERS 5.8(a) MANDATORY The Company, its receiver or its trustee, shall indemnify, save harmless and pay all judgments and claims against the Managers relating to any liability or damage incurred by reason of any act performed or omitted to be performed by the Managers in connection with the business of the Company, including attorneys' fees incurred by the Managers in connection with the defense of any action based on any such act or omission, which attorneys' fees may be paid as incurred, including all such liabilities under federal and state securities laws (including the Securities Act of 1933, as amended) as permitted by law. 5.8(b) IF MANAGER IS EXONERATED IN THE PROCEEDING In the event of any action by a Member against a Manager, including a derivative suit on behalf of the Company, the Company shall indemnify, save harmless and pay all expenses of such Manager, including attorneys' fees, incurred in the defense of such action, if such Manager is successful in such action. 5.8(c) NO INDEMNIFICATION Notwithstanding the foregoing provisions of this Section 5.8, the Managers shall not be indemnified from any liability for fraud, bad faith, willful misconduct or gross negligence. 5.8(d) LIMITATION Any indemnification under this Section 5.8 shall be paid from and only to the extent of the Company's assets, and no Member shall have personal liability for such indemnification. 6. ROLE OF THE BOARD OF DIRECTORS 6.1 NUMBER AND DESIGNATION OF DIRECTORS The Company shall have a Board of Directors composed of two directors. The Initial Member designates R. Jack DeCrane and Richard J. Kaplan as the initial directors. 6.2 RIGHTS AND POWERS The Board of Directors shall have the powers reserved to it in this Agreement and, in addition, may take any action reserved to the Members in this Agreement or in the Act. 6.3 TERM; REMOVAL Each director serves at the pleasure of the Member who designated him or her pursuant to Section 3.1; and each Member having the right to designate one or 7 more directors may remove and replace such designated directors at will, by notice to the Managers and directors. In the event a Member sells, transfers or loses all of its Interests in the Company, all directors designated by such Member shall be removed from the Board of Directors and their seats shall be declared vacant. 6.4 MEETINGS The Board of Directors shall meet at such times as they may elect from time to time, in each case at the dates and times agreed by the directors; but the Board of Directors shall not be required to meet at any fixed time. The rules set forth in Section 8.2(a), (d), (e), (f) and (g) for the meetings of Members shall also apply to all meetings of the Board of Directors, EXCEPT that there shall be no record date in connection with propositions to be put to a vote at meetings of the Board. 60% of the then-seated directors shall constitute a quorum for any transacting of business by the Board of Directors, and the Board of Directors may not act in the absence of a quorum. Any action approved by a majority of the directors present at a duly called meeting of the Board of Directors at which a quorum is present, or by all of the directors then-seated by written consent without meeting, shall be the action of the Board of Directors. Any action that may be taken at any meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed and delivered to the Managers by directors having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all of the directors entitled to vote thereon were present and voted. 6.5 LIMITED LIABILITY The rights and powers of a member of the Board of Directors, in his capacity as a director, shall not exceed the rights and powers that a member of a manager-managed limited liability company could exercise under the Act. Except to the extent (if any) otherwise required by the Act, no director shall be liable for the debts, liabilities, contracts or any other obligations of the Company. 7. ROLE OF MEMBERS 7.1 RIGHTS AND POWERS The Members shall have the powers reserved to them in this Agreement or in the Act. 7.2 LIMITED LIABILITY Except to the extent (if any) otherwise required in the Act, no Member shall be liable for the debts, liabilities, contracts or any other obligations of the Company. 7.3 NO PARTITION No Member or director shall, either directly or indirectly, take any action to require partition of the Company or of any of its property or to cause the sale of any of such property, nor shall any Manager do so without the approval of the Board of Directors. 8 8. MEETINGS OF MEMBERS 8.1 REQUIRED MEETINGS The Member or Members shall hold meetings at such times as it or they may unanimously agree in writing, but shall not be required to meet at any fixed time. At any such meeting, Members holding a majority in Interest shall constitute a quorum. No action can be taken by the Members at a meeting after a quorum ceases to be present at the meeting. The failure of the Company to observe any corporate formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company. 8.2 PROCEDURE 8.2(a) LOCATION Unless all of the Members agree otherwise in writing, meetings of Members shall be held at the chief executive office of the Initial Member in California (or at any other place in the County of Los Angeles, State of California, selected by the Board of Directors and specifically identified in the notice of the meeting), so long as the meeting place has adequate facilities to permit participation by telephone conference call. 8.2(b) CALL A meeting of the Members may be called by any Manager, or by any Member or Members representing more than 10% of the Interests for the purpose of addressing any matters on which the Members may vote. 8.2(c) NOTICE (1) Whenever Members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given pursuant to Article 12 (Other Provisions) not less than 10 days nor more than 60 days before the date of the meeting to each Member entitled to vote at the meeting. The notice shall state the place, date, and hour of the meeting and the general nature of the business to be transacted. No other business may be transacted at this meeting. (2) An affidavit of mailing of any notice or report in accordance with the provisions of this paragraph, signed by a Manager, shall be prima facie evidence of the giving of the notice or report. (3) Upon written request to a Manager by any person entitled to call a meeting of Members, the Manager shall immediately cause notice to be given to the Members entitled to vote that a meeting will be held at a time requested by the person calling the meeting, not less than 10 days nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the person entitled to call the meeting may give the notice or, upon the application of that person, the superior court of the county in California in which the principal office of the Company is located shall summarily order the giving of the notice, after notice to the Company affording it an opportunity to be heard. The court may issue any order as may be appropriate, including an order designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice. 9 8.2(d) ADJOURNED MEETINGS When a meeting of Members is adjourned to another time or place, unless the articles of organization or this Agreement otherwise require and, except as provided in this paragraph, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business that may have been transacted at the original meeting. If the adjournment is for more than 45 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. 8.2(e) WAIVER OF NOTICE The actions taken at any meeting of Members, however called and noticed, and wherever held, have the same validity as if taken at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the Members entitled to vote, not present in person or by proxy, signs a written waiver of notice or consents to the holding of the meeting or approves the minutes of the meeting. All waivers, consents, and approvals shall be filed with the Company records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this title to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted nor the purpose of any meeting of Members need be specified in any written waiver of notice, unless otherwise provided in the articles of organization or operating agreement, except as provided in paragraph (g) below. 8.2(f) PARTICIPATION BY TELEPHONE CONFERENCE CALL Members may participate in a meeting of Members through the use of conference telephones or similar communications equipment, as long as all Members participating in the meeting can hear one another. Participation in a meeting pursuant to this provision constitutes presence in person at that meeting. 8.2(g) NATURE OF PROPOSAL Any action approved at a meeting, other than by unanimous approval of those entitled to vote, shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting (or at the previous meeting) or in any written waiver of notice. 8.2(h) QUORUM A majority in Interest of the Members represented in person or by proxy shall constitute a quorum at a meeting of Members. In the absence of a quorum, any meeting of Members may be adjourned from time to time by the vote of a majority of the Interest represented either in person or by proxy, but no other business may be transacted. 10 8.2(i) WRITTEN ACTION WITHOUT MEETING Any action that may be taken at any meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed and delivered to the Managers within 60 days of the record date for that action by Members having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all Members entitled to vote thereon were present and voted. (1) Unless the consents of all Members entitled to vote have been solicited in writing, (A) notice of any Member approval of an amendment to the articles of organization or this Agreement, a dissolution of the Company, or a merger of the Company, without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval, and (B) prompt notice shall be given of the taking of any other action approved by Members without a meeting by less than unanimous written consent, to those Members entitled to vote who have not consented in writing. (2) Any Member giving a written consent, or the Member's proxyholder, may revoke the consent by a writing received by the Company prior to the time that written consents of Members having the minimum number of votes that would be required to authorize the proposed action have been filed with the Company, but may not do so thereafter. This revocation is effective upon its receipt at the principal office of the Company in California. 8.2(j) PROXIES The use of proxies in connection with this section will be governed in the same manner as in the case of corporations formed under the Delaware General Corporation Law. 8.2(k) RECORD DATE In order that the Company may determine the Members of record entitled to notices of any meeting or to vote, or entitled to receive any distribution or to exercise any rights in respect of any other lawful action, a Manager, or Members representing more than 10 percent of the interests of Members, may fix, in advance, a record date, that is not more than 60 days nor less than 10 days prior to the date of the meeting and not more than 60 days prior to any other action. If no record date is fixed: (1) The record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (2) The record date for determining Members entitled to give consent to limited liability company action in writing without a meeting shall be the day on which the first written consent is given. (3) The record date for determining Members for any other purpose shall be at the close of business on the day on which the Managers adopt the 11 resolution relating thereto, or the 60th day prior to the date of the other action, whichever is later. (4) The determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment of the meeting unless a Manager or the Members who called the meeting fix a new record date for the adjourned meeting, but the Manager or the Members who called the meeting shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. 8.3 VOTING RIGHTS The Members shall have the right to vote on the matters explicitly set forth in this Agreement or in the Act. Each Member shall have a vote on all matters on which all Members may vote equal to his or its LLC Percentage. With respect to the Members, the term "majority in interest" means more than 50% of the LLC Percentages of all Members. 8.4 RULES OF CONDUCT At each meeting of Members they shall appoint a chair who shall conduct the meeting and who shall appoint a secretary of the meeting to keep minutes and file the minutes with the Company's permanent files. 9. RESTRICTIONS ON TRANSFER 9.1 RESTRICTION ON TRANSFERS Except as otherwise permitted by this Agreement, no Member shall Transfer all or any portion of any Interest. 9.2 PERMITTED TRANSFERS The Initial Member may Transfer its Interest in connection with a sale of substantially all assets of the Initial Member, to the purchaser thereof. The Initial Member may Transfer its Interest for the purpose of providing security for an obligation, by hypothecation, pledge, collateralization or otherwise. Any Interest so held or Transferred shall remain subject to all of the provisions of this Agreement and the Member, both individually and as trustee of the trust, shall continue to be considered a "Member" for purposes of this Agreement. 9.3 INVOLUNTARY TRANSFER Any proposed Transfer of an Interest that is required by law pursuant to any insolvency proceeding of a Member shall be subject to the terms and conditions of this Agreement, including Section 9.7. 9.4 PROHIBITED TRANSFERS Any purported Transfer of an Interest that is not permitted by this Agreement shall be null and void and of no effect whatever; PROVIDED that if the Company is required to recognize a Transfer that is not so permitted, the Interest Transferred shall be strictly limited to the transferor's rights to allocations and distributions under this 12 Agreement with respect to the Transferred Interest, which allocations and distributions may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations, or liabilities for damages that the transferor or transferee of such Interest may have to the Company. In the case of a Transfer or attempted Transfer that is not permitted by this Agreement, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all costs, liabilities and damages that any of such indemnified Persons may incur (including additional tax liability and lawyers' fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce this Section 9.4, including such indemnity. 9.5 GENERAL TRANSFER PROVISIONS (a) All Transfers shall be by instrument in form and substance satisfactory to counsel for the Company and shall contain an expression by the transferee of his or its intention to accept the Transfer and to adopt and be bound by all of the provisions of this Agreement, and shall provide for the payment by the transferor of all reasonable expenses incurred by the Company in connection with such Transfer, including the necessary amendments to this Agreement to reflect such Transfer. The transferor shall sign and acknowledge all such instruments, in form and substance reasonably satisfactory to the Company's counsel, as may be necessary or desirable to effect such Transfer. (b) The Company shall not dissolve or terminate upon the admission of any new Member or upon any permitted Transfer. Each Member hereby waives any right such Member may have to dissolve, liquidate or terminate the Company in any such event. (c) This Section 9.5 imposes additional restrictions on the Transfer of Interests and does not permit any Transfer not otherwise permitted by this Agreement. 9.6 COMPLIANCE Notwithstanding anything to the contrary in this Agreement, at law or in equity, no Member shall Transfer or otherwise deal with any Interest in a way that would cause a default under any material agreement to which the Company is a party or by which it is bound. 9.7 ADMISSION OF MEMBERS No new Members shall be admitted without the approval required by Section 5.6. A transferee of an Interest shall not be admitted as a Member without the approval required by Section 5.6, PROVIDED that if the transferee is already a Member at the time of the transfer and the transfer is permitted by this Agreement, then the transferee shall have all rights of a Member with respect to the transferred Interest. 9.8 RIGHTS OF UNADMITTED ASSIGNEES Notwithstanding any other provision of this Agreement, a Person who acquires an Interest but who is not admitted as a Member of the Company pursuant to this Agreement shall be entitled only to receive, to the extent assigned, the distributions and the allocations to which the assignor would be entitled under this Agreement, but 13 shall have no right to vote or to participate in the management and affairs of the Company, or to exercise any of the rights of a Member. 10. [DELIBERATELY OMITTED.] 11. DISSOLUTION 11.1 LIQUIDATING EVENTS The Company shall dissolve and commence winding up and liquidating upon the first to occur of any of the following ("Liquidating Events"): (a) The decision of all of the Members to dissolve, wind up and liquidate the Company; (b) The sale or transfer by the Company of all or substantially all of its assets; (c) The occurrence of any other event that makes it unlawful or impossible to carry on the business of the Company; or (d) Entry of a decree of judicial dissolution pursuant to the Act. 11.2 CONTINUING LIMITED LIABILITY COMPANY Notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Liquidating Event. The withdrawal, resignation or retirement of any Member which the Company is required by proper authority to recognize, or the death, expulsion, bankruptcy or dissolution of any Member or the occurrence of any other event which terminates the continued membership in the Company of any Member shall not be a liquidating event. 11.3 WINDING UP Upon the occurrence of a Liquidating Event: (a) The Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members; (b) No Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company's business and affairs; (c) A person, who may but need not be a Member, shall be unanimously selected by the Members (or by arbitration pursuant to the terms hereof if agreement cannot be reached) as the Company's liquidator, and shall be responsible for overseeing the winding up and dissolution of the Company and shall take full account of the Company's liabilities and assets; (d) No Manager shall receive any additional compensation for any services performed pursuant to this Section 11.3; 14 (e) Unless all Members agree upon a sale among themselves or a division in kind of assets, the assets of the Company shall be sold in the usual course of business using reasonable business judgment; and (f) If any property of the Company is to be distributed in kind upon the liquidation of the Company, such property shall be liquidated as promptly as is consistent with obtaining its fair value. 11.4 APPLICATION OF PROCEEDS The liquidation proceeds shall be applied and distributed, to the extent sufficient to do so, in the following order: First, to the payment and discharge of all of the Company's debts and liabilities to creditors other than the Members; Second, to the payment and discharge of all of the Company's debts and liabilities to the Members; and The balance, if any, to the Members in accordance with their Capital Accounts, after giving effect to all contributions, distributions and allocations for all periods. Any in-kind distributions of property of the Company shall be made among the Members pro rata in proportion with their relative Capital Accounts. 11.5 NEGATIVE CAPITAL ACCOUNTS If a Liquidation Event and a Tax Liquidation both occur, then: Distributions shall be made pursuant to this Article 11 to the Members who have positive Capital Accounts; and (a) If any Member has a deficit balance in his or its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), then such Member shall have no obligation to contribute to the capital of the Company and the deficit shall not be considered a debt owed to the Company or any other Person for any purpose whatsoever; and (b) Section 14.19 (Negative Capital Accounts: Tax Issues) shall apply. 11.6 DISCRETIONARY WITHHOLDING AND DISTRIBUTIONS With the approval of the Board of Directors, a pro rata portion of the distributions that would otherwise be made to the Members pursuant to this Article 11 may be: (a) Distributed to a trust established for the benefit of the Members for the purposes of liquidating property of the Company, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company or of the Managers arising out of or in connection with the Company, PROVIDED 15 that assets of any such trust shall be distributed to the Members from time to time, in the reasonable discretion of the liquidator appointed hereunder, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Members pursuant to this Agreement; or (b) Withheld to provide a reasonable reserve for liabilities (contingent or otherwise) of the Company and to reflect the unrealized portion of any installment obligations owed to the Company, PROVIDED that such withheld amounts shall be distributed to the Members as soon as practicable. 11.7 RIGHTS OF MEMBERS Except as otherwise provided in this Agreement, the Members shall look solely to the assets of the Company for the return of their Capital Contributions and no Member shall have any right or power to demand or receive property other than cash from the Company. No Member shall have priority over any other Member as to the return of his or its Capital Contribution, distributions or allocations. 11.8 NOTICE OF DISSOLUTION If a Liquidating Event occurs, the Company shall, within 60 days after the occurrence, provide written notice of the occurrence to each of the Members and to all known creditors and claimants whose names appear on the records of the Company. 11.9 CERTIFICATES OF DISSOLUTION Upon the dissolution of the Company, the liquidator appointed hereunder and, to the extent required, any other party hereto or appointed hereunder, shall promptly sign and cause to be filed certificates of dissolution in accordance with the Act and the laws of any other states or jurisdictions in which the Company has filed its Articles of Organization or qualified to transact intrastate business. 12. OTHER PROVISIONS 12.1 ENTIRE AGREEMENT This Agreement, which includes material provisions on the schedules hereto, each of which is incorporated in full herein, constitutes the entire agreement pertaining to the organization of the Company and completely supersedes all other agreements and all drafts, understandings, negotiations and discussions, whether oral or written, among the parties pertaining to the subject matter of this Agreement. 12.2 AMENDMENTS No amendment or waiver of any provision of this Agreement shall be effective unless and until an instrument reflecting the amendment or waiver has received the approval of the Members. The waiver by any party of a breach or default of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or default. A party's failure either to insist upon any other party's strict performance of any provision of this Agreement or to exercise any of the party's rights or remedies under this 16 Agreement shall not constitute a waiver of any default by the other party or of any right or remedy of the non-defaulting party. 12.3 GOVERNING LAW Delaware law shall govern this Agreement, any agreement to amend or adopt this Agreement, and all disputes arising hereunder. 12.4 SEVERABLE PROVISIONS The provisions of this Agreement are severable, and if any provision is determined to be illegal or otherwise unenforceable, in whole or in part, then the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable and shall be construed as closely as possible to their original meanings. 12.5 BINDING EFFECT Except as otherwise provided in this Agreement, every provision of this Agreement shall bind and benefit the Members and their respective heirs, legatees, legal representatives, successors, transferees and assigns. 12.6 PARTIES IN INTEREST; THIRD PARTIES All references in this Agreement to "parties" refer to the parties to this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer on any Person or entity other than a party any right or remedy under or by reason of this Agreement. The provisions of this Agreement are not intended to benefit any creditor or other Person (other than a Member in his or its capacity as a Member) to whom any debts, liabilities or obligations are owed or who otherwise has a claim against the Company or any Member; and no such creditor or other Person shall obtain any right under this Agreement against the Company or any Member by reason of any such debt, liability or obligation, or otherwise. 13. DEFINITIONS Capitalized words and phrases used in this Agreement have the following meanings 13.1 "ADJUSTED CAPITAL CONTRIBUTIONS" means, as of any day with respect to a Member, such Member's Capital Contributions, adjusted as follows: (a) Increased by the amount of any Company liabilities which, in connection with distributions to such Member pursuant to Section 3.1 (Distributions Generally) and 11.4 (Dissolution/Application of Proceeds) are assumed by such Member or are secured by any property of the Company distributed to such Member; and (b) Reduced by the amount of cash and the Gross Asset Value (as defined in Section 14.21) of any property of the Company distributed to such Member pursuant to Sections 3.1 (Distributions Generally) and 11.4 (Dissolution/Application of 17 Proceeds) and the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company. (c) If such Member Transfers all or any portion of his Interest in accordance with the terms of this Agreement, his transferee shall succeed to his or its Adjusted Capital Contributions to the extent it relates to the Transferred Interest. 13.2 "AGREEMENT" means this Operating Agreement, as amended from time to time. 13.3 "BOARD OF DIRECTORS" means the board established pursuant to Article 6 (Role of the Board of Directors). 13.4 "BUSINESS DAY" means a day that is not a Saturday, Sunday or public holiday in the place to which the notice, consent or other communication is sent. 13.5 "CAPITAL ACCOUNT" means, with respect to any Member, the Capital Account maintained for such Person in accordance with the following provisions and Section 14.21: (a) To each Person's Capital Account there shall be credited such Person's Capital Contribution, such Person's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), and the amount of any of the Company's liabilities assumed by such Person or which are secured by any property of the Company distributed to such Person. (b) To each Person's Capital Account there shall be debited the amount of money and the Gross Asset Value of any property distributed to such Person pursuant to any provision of this Agreement, such Person's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Sections 14.4 through 14.12 and the amount of any liabilities of such Person assumed by the Company or which are secured by any property contributed by such Person to the Company. (c) If any Interest is Transferred in accordance with this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Interest. 13.6 "CAPITAL CONTRIBUTION" means, with respect to any Member, the amount of money and the gross fair market value of any property (other than money) contributed pursuant to this Agreement to the controlled by such a person or entity. 13.7 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 18 13.8 "COMPANY" means the California limited liability company created and pursuant to this Agreement and the limited liability company continuing the business in the event of dissolution as provided in Section 11.2 (Dissolution). 13.9 "INITIAL MEMBER" has the meaning set forth for such term in the introductory paragraph of this Agreement. 13.10 "INTEREST" means, with respect to any Member, the ownership rights of the Member in the Company, including the right to receive distributions from the Company. In the event any Interest is Transferred in accordance with the provisions of this Agreement, the transferee of such interest shall succeed to the Interest of his or its transferor to the extent it is Transferred. 13.11 "LIQUIDATING EVENT" has the meaning set forth in Section 11.1. 13.12 "LLC PERCENTAGE" means, with respect to any Member at any time, the proportion (expressed as a percentage) of such Member's Interests at such time to the aggregate number of all Interests then outstanding. If any Interest is Transferred in accordance with the provisions of this Agreement, the transferee of such Interest shall succeed to the portion of the transferor's LLC Percentage represented by the Transferred Interest. 13.13 "MANAGERS" means the Persons serving as managers of the Company within the meaning of the Act and pursuant to the terms and conditions of this Agreement. 13.14 "MEMBER" means any Person who is (a) the Initial Member, as designated in Section 2.1, or subsequently admitted as a Member pursuant to this Agreement, AND (b) who owns an Interest. "Members" means all such Persons. 13.15 "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (including any beneficiary of the trust), unincorporated organization, or government or any agency or political subdivision. 13.16 "PROFITS" and "LOSSES" means, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Section 14.21. 19 13.17 "TRANSFER" (a) means, as a noun, any voluntary or involuntary assignment, transfer, sale, pledge, hypothecation or other disposition, and, as a verb, voluntarily or involuntarily to assign, transfer, sell, pledge, hypothecate or otherwise dispose of or to obtain a charging order against. A "Transfer" includes a gift or transmutation of an Interest into another type of property interest or into an Interest jointly owned with another Person, including a gift or transmutation of a separate property Interest into a community or other joint property Interest with a spouse or another Person, or the partition of a community or other joint property Interest (whether voluntarily, pursuant to a divorce proceeding or otherwise). 14. ADDITIONAL TAX PROVISIONS 14.1 TAX CLASSIFICATION The Members intend that the Company shall be classified as a partnership for federal income tax purposes under Code Section 7701(a)(2) and the corresponding provisions, if any, of state and local law. 14.2 PROFITS After giving effect to the special allocations in Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Profits for any fiscal year or other period shall be allocated to the Members in proportion to their LLC Percentages. 14.3 LOSSES AND OTHER ITEMS After giving effect to the special allocations in Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Losses for any fiscal year or other period shall be allocated in the following order and priority: (a) Except as provided in Section 14.3(b), Losses shall be allocated to the Members in proportion to their LLC Percentages. (b) The Losses allocated pursuant to Section 14.3(a) shall not exceed the maximum amount of Losses that can be so allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any fiscal year. If some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 14.3(a), the limitation set forth in this Section 14.3(b) shall be applied on a Member-by-Member basis so as to allocate the maximum permissible Losses to each Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations. Except as otherwise provided in this Agreement, all items of the Company income, gain, loss, deduction, credit and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Losses for the period. 14.4 MINIMUM GAIN CHARGEBACK Except as provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Article 14, if there is a net decrease in Minimum Gain during any fiscal year of the Company, each Member shall be specially 20 allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to the portion of such Member's share of the net decrease in Minimum Gain, determined in accordance with Section 1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant to such Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 14.4 is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently with it. 14.5 MEMBER NONRECOURSE DEBT MINIMUM GAIN Except as provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article 14 except Section 14.4, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Company fiscal year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to the portion of such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant to such Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 14.5 is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently with it. 14.6 QUALIFIED INCOME OFFSET In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, PROVIDED that an allocation pursuant to this Section 14.6 shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 14.6 have been tentatively made as if this Section 14.6 were not in the Agreement. 14.7 GROSS INCOME ALLOCATION In the event any Member has a deficit Capital Account at the end of any Company fiscal year which is in excess of the sum of (1) the amount such Member is obligated to restore pursuant to any provision of this Agreement and (2) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, PROVIDED that an allocation pursuant to this Section 14.7 shall be made only if and to the extent that such Member would have a deficit Capital Account in 21 excess of such sum after all other allocations provided for in Sections 14.4 through 14.10 have been tentatively made as if this Section 14.7 were not in the Agreement. 14.8 NONRECOURSE DEDUCTIONS Nonrecourse Deductions for any fiscal year or other period shall be specially allocated among the Members in proportion to their LLC Percentages. 14.9 MEMBER NONRECOURSE DEDUCTIONS Any Member Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(1) of the Regulations. 14.10 CODE SECTION 754 ADJUSTMENTS To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) of the Regulations, to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of his or its interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Interests if such Section 1.704-1(b)(2)(iv)(m)(2) applies, or, if such Section 1.704-1(b)(2)(m)(4) applies, to the Member to whom such distribution was made. 14.11 CURATIVE ALLOCATIONS The allocations in the last sentence of the first paragraph of Section 14.3 (Losses and Other Items) and Sections 14.4 (Minimum Gain Chargeback), 14.5 (Member Nonrecourse Debt Minimum Gain), 14.6 (Qualified Income Offset), 14.7 (Gross Income Allocation), 14.8 (Nonrecourse Deductions), 14.9 (Member Nonrecourse Deductions) and 14.10 (Code Section 754 Adjustments) (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 14.11. Therefore, notwithstanding any other provision of this Article 14 (other than the Regulatory Allocations), the Managers shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner they determine appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 14.2. In exercising their discretion under this Section 14.11, the Managers shall take into account future Regulatory Allocations under Sections 14.4 and 14.5 that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 14.8 and 14.9. 22 14.12 ORDER OF APPLICATION Sections 14.4 through 14.11 shall be applied in the order in which they are set forth in this Agreement. 14.13 ALLOCATION METHOD For purposes of determining the Profits, Losses or any other items allocable to any period, Profits, Losses and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Managers using any permissible method under Code Section 706 and the Regulations under it. 14.14 EXCESS NONRECOURSE LIABILITIES Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Section 1.752-3(a)(3) of the Regulations, the Members' interests in the Company's Profits are in proportion to their LLC Percentages. 14.15 SOURCE OF DISTRIBUTIONS To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Managers shall endeavor to treat cash distributions to Members as having been made from the proceeds of Nonrecourse Liabilities or Member Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Member. 14.16 TAX ALLOCATIONS: CODE SECTION 704(c) In accordance with Code Section 704(c), income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 14.22(d)(1)). If the Gross Asset Value of any Company asset is adjusted pursuant to Section 14.22(d)(3), subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations under it. Any elections or other decisions relating to such allocations shall be made by the Managers in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 14.16 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Person's Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement. 14.17 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT TO TRANSFERRED INTERESTS If any Interest is Transferred during any accounting period in compliance with Article 8 (Restrictions on Transfer), then Profits, Losses, each item of Profit and Loss 23 and all other items attributable to the Transferred Interest for such period shall be divided and allocated between the transferor and the transferee by taking into account their varying Interests during the period in accordance with Code Section 706(d), using any conventions permitted by law and selected by the Managers. All distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee. 14.18 TAX CHARACTERIZATION OF PAYMENTS TO A SELLING PARTNER The Managers shall, to the greatest extent allowed by law, determine the tax classification of all payments by the Company or a Member to a Selling Member. The parties intend that such payments shall, to the extent possible, be deductible to the Company and ordinary income to the Selling Member. 14.19 NEGATIVE CAPITAL ACCOUNTS: TAX ISSUES When a Tax Liquidation occurs, any distributions required by Section 11.5((a)) shall be made in compliance with Section 1.704-1(b)(2)(ii)(b)(2) of the Regulations. 14.20 TAX MATTERS PARTNER The Initial Member shall be the Person designated to receive all notices from the Internal Revenue Service and other tax authorities that pertain to the tax affairs of the Company, and shall be the "tax matters partner" for purposes of Code Sections 6221 through 6233. Each party agrees to be bound by those Code Sections. The "tax matters partner" shall provide to each other Member in a timely manner the notices required to be provided by Section 301.6223(g)-1T of the Regulations and the corresponding provisions of state tax law. The "tax matters partner" shall be reimbursed by the Company for expenses reasonably incurred in connection with his work as "tax matters partner." The "tax matters partner" shall not be otherwise compensated for such work; and if he or it resigns as "tax matters partner" or ceases to be a Member, then the Members shall select another "tax matters partner." 14.21 TAX DEFINITIONS 14.21(a) "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: (1) Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (2) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. 24 The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently with it. 14.21(b) CAPITAL ACCOUNTS: TAX ISSUES In determining the amount of any liability for purposes of Sections 13.1(a), 13.1(b), 13.5(a) and 13.5(b) there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The provisions of Section 13.5 (Capital Account) and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Regulations, and shall be interpreted and applied in a manner consistent with it. If the Managers determine that to comply with the Regulations it is prudent to modify the manner in which the Capital Accounts, or any debits or credits to the Capital Accounts (including debits or credits relating to liabilities which are secured by property contributed to or distributed from the Company or which are assumed by the Company or Members), are computed, they may make such modification, PROVIDED that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Article 10 (Dissolution) upon the dissolution of the Company. The Managers also shall (a) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Section 1.704-1(b)(2)(iv)(g) of the Regulations, and (b) make any appropriate modifications if unanticipated events might otherwise cause this Agreement not to comply with Section 1.704-1(b) of the Regulations. 14.21(c) "DEPRECIATION" means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; PROVIDED, HOWEVER, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managers. 14.21(d) "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: 25 (1) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the contributing Member and the Company; (2) The Gross Asset Value of any the Company asset distributed to any Member shall be the asset's gross fair market value on the date of distribution; (3) The Gross Asset Values of all the Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Managers, as of the following times: (a) the acquisition of an additional Interest by any new or existing Member in exchange for more than a DE MINIMIS Capital Contribution; (b) the distribution by the Company to a Member of more than a DE MINIMIS amount of property as consideration for an interest in the Company if such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company; and (c) the Tax Liquidation of the Company; PROVIDED, HOWEVER that adjustments pursuant to clauses (a) and (b) above shall be made only if the Managers reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. (4) The Gross Asset Values of the property of the Company shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations and Sections 14.10 (Code Section 754 Adjustments) and 14.22(j)(6) (Profits and Losses); PROVIDED, HOWEVER, that Gross Asset Values shall not be adjusted pursuant to this Section 14.22(d)(4) to the extent the Managers determine that an adjustment pursuant to Section 14.22(d) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 14.22(d)(4). (5) After the Gross Asset Value of an asset has been determined or adjusted pursuant to Section 14.22(d)(1), (3) or (4), such Gross Asset Value shall be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 14.21(e) "MEMBER NONRECOURSE DEBT" has the meaning set forth in Section 1.704-2(b)(4) of the Regulations. 14.21(f) "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to each Member Nonrecourse Debt, equal to the Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. 26 14.21(g) "MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. 14.21(h) "MINIMUM GAIN" has the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. 14.21(i) "NONRECOURSE DEDUCTIONS" has the meaning set forth in Section 1.704-2(b)(1) of the Regulations. 14.21(j) "NONRECOURSE LIABILITY" has the meaning set forth in Section 1.704-2(b)(3) of the Regulations. 14.21(k) "PROFITS" and "LOSSES" under Section 13.16 shall be determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (1) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 14.22(j) shall be added to such taxable income or loss; (2) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken into account in computing Profits or Losses pursuant to this Section 14.22(j) shall be subtracted from such taxable income or loss; (3) If the Gross Asset Value of any Company asset is adjusted pursuant to Section 14.22(d)(3) or (4), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (4) Gain or loss resulting from any disposition of property of the Company with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (5) In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period, computed in accordance with Section 14.22(c) (Depreciation); 27 (6) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required by Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and (7) Notwithstanding any other provision of this Section 14.22(j), any items which are specially allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application) shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss, or deduction available to be specifically allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), shall be determined by applying rules analogous to those set forth in this Section 14.22(j). 14.21(l) "REGULATIONS" means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time. 14.21(m) "TAX LIQUIDATION" means the liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations. 28 THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. EACH PARTY REPRESENTS TO EACH OTHER PARTY THAT HE OR IT HAS READ THIS AGREEMENT AND HAS HAD THE OPPORTUNITY TO SEEK INDEPENDENT TAX AND LEGAL ADVICE CONCERNING THIS AGREEMENT. INITIAL MEMBER: DeCRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------ 29 EX-3.26-1 6 ex-3_261.txt EXHIBIT 3.26.1 EXHIBIT 3.26.1 State of Wisconsin Department of Financial Institutions RESTATED ARTICLES OF INCORPORATION STOCK FOR-PROFIT CORPORATION The following restated articles of incorporation of E R D A, INC. ------------------------------------------------------------------- (Corporation name prior to any change effected by this restatement) duly adopted pursuant to the authority and provisions of Chapter 180 of the Wisconsin Statutes, supercede and take the place of the existing articles of incorporation and any amendments thereto: Article 1. Name of the corporation: E R D A, Inc. Article 2. The corporation is organized under Ch. 180 of the Wisconsin Statutes. Article 3. The corporation shall be authorized to issue 10,000,000 shares. Article 4. Name of the registered agent: CT CORPORATION SYSTEM Article 5. Street address of the registered office: 44 East Mifflin Street Madison, Wisconsin 53703 Article 6. Other provisions (OPTIONAL):None 1 CERTIFICATE This is to certify that the foregoing restated articles of incorporation A. ( ) Does not contain any amendment requiring shareholder approval, and were adopted on by the board of directors or incorporators ------------ (Date) OR B. (X) Contains one or more amendments to the articles of incorporation (Note: Select and mark (X) for A. or B. above. If you mark B., complete the following section. - -------------------------------------------------------------------------------- COMPLETE THIS SECTION only in you have marked "B" above. Amendment(s) adopted on JULY 11, 2000 (Date) (INDICATE THE METHOD OF ADOPTION BY CHECKING (X) THE APPROPRIATE CHOICE BELOW.) ( ) In accordance with sec. 180.1003, Wis. Stats. (By the Board of Directors) OR (X) In accordance with sec. 180.1003 and 180.1004, Wis. Stats. (By the Board of Directors and Shareholders) OR ( ) In accordance with sec. 180.1005, Wis. Stats. (By Incorporators or Board of Directors, before issuance of shares) C. Executed on July 12, 2000 /s/ Richard J. Kaplan ----------------------- ----------------------- (Date) (Signature) Title ( ) President (X) Secretary or other officer title____________ Richard J. Kaplan ----------------------- (Printed Name) This document was drafted by SHERIDAN WEST -------------------------------------------------- (Name the individual who drafted the document) 2 EX-3.26-2 7 ex-3_262.txt EXHIBIT 3.26.2 EXHIBIT 3.26.2 E R D A ACQUISITION CO. BYLAWS * * * * ARTICLE I OFFICES Section 1. The registered office shall be located in Peshtigo, Wisconsin. Section 2. The corporation may also have offices at such other places both within and without the State of Wisconsin as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETINGS OF SHAREHOLDERS Section 1. All meetings of shareholders for the election of directors shall be held at the corporation's headquarters in Peshtigo, Wisconsin, or at such other place as may be fixed from time to time by the board of directors. Section 2. Annual meetings of shareholders, commencing with the year 2001, shall be held on 1st day of June, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., at which they shall elect, pursuant to law, a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written or printed notice of the annual meeting, stating the date, time, and place of the meeting, shall be delivered not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. ARTICLE III SPECIAL MEETINGS OF SHAREHOLDERS Section 1. Special meetings of shareholders for any purpose other than the election of directors may be held at such time and place within or without the State of Wisconsin as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the charter, may be called by the president, the board of directors, such other officers or persons provided in the articles of incorporation, or upon written demand of at least ten percent (10%) of all of the votes entitled to be cast on any issue proposed to be considered. Section 3. Written or printed notice of a special meeting stating the date, time, and place of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either 1 personally or by mail, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Section 4. The business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. A majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of the voting group for action on that matter, except as otherwise provided by statute or by the charter. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the vote of a greater number of affirmative votes is required by law or the articles of incorporation. Section 3. Each outstanding share, regardless of class, shall be entitled to one vote on each matter voted on at a meeting of shareholders unless the articles of incorporation or law provides otherwise. A shareholder may vote either in person or by proxy as provided for in a signed appointment form executed by the shareholder or by his duly authorized attorney-in-fact. Section 4. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting (1) if one or more written consents setting forth the action so taken shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof, or (2) if so provided in the articles of incorporation, by persons who would be entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at a meeting at which all the shareholders entitled to vote were present and voted. ARTICLE V DIRECTORS Section 1. The number of directors shall be no less than two and no more than five. Unless the articles of incorporation otherwise provide, directors need not be residents of the State of Wisconsin nor shareholders of the corporation. The directors, other than the first board of directors, shall be elected at the annual meeting of the shareholders, and each director elected shall serve until the next succeeding annual meeting and until his successor shall have been elected and qualified. The first board of directors shall hold office until the first meeting of shareholders. 2 Section 2. Unless the articles of incorporation provide otherwise, any vacancy occurring on the board of directors, including a vacancy resulting from an increase in the number of directors, may be filled by the shareholders, the board of directors, or if the directors remaining in office constitute fewer than a quorum of the board, the vacancy may be filled by the affirmative vote of a majority of the directors remaining in office. Section 3. The business affairs of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, by the articles of incorporation or by these by-laws directed or required to be exercised or done by the shareholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the State of Wisconsin, at such place or places as they may from time to time determine. Section 5. The board of directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the board of directors, regular or special, may be held either within or without the State of Wisconsin. Section 2. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting or it may convene at such place and time as shall be fixed by the consent in writing of all the directors. No notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. Section 3. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board. Section 4. Special meetings of the board of directors may be called on 3 business days' notice to each director, either personally, by mail or by telegram. Section 5. Attendance or participation of a director at any meeting shall constitute a waiver of notice of such meeting, unless the director, at the beginning of the meeting (or promptly upon his arrival), objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of the notice of such meeting. Section 6. A majority of the directors then seated shall constitute a quorum for the transaction of business, unless a greater number is required by law or by the articles of 3 incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by statute or by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time until a quorum shall be present. Section 7. Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting if one or more written consents, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE VII COMMITTEES Section 1. The board of directors may create two (2) or more committees that may consist of two (2) or more members of the board. Committee members shall serve at the board of directors' pleasure. To the extent specified by the board of directors or articles of incorporation, each committee shall have and exercise all of the authority of the board of directors in the management of the corporation, except as otherwise provided by law. ARTICLE VIII NOTICES Section 1. Whenever notice is required to be given to any director or shareholder under the provisions of the statutes, the articles of incorporation or these by-laws, it shall be construed to mean written notice, which may be by mail, addressed to such director or shareholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time it is deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever notice is required to be given under the provisions of the statutes, the articles of incorporation or these by-laws, a waiver thereof, in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE IX OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors, and shall be a chairman of the board, a president, a secretary, a chief financial officer and a treasurer. The board of directors may also elect to choose a chief executive officer, vice-presidents, and one or more assistant secretaries and assistant treasurers Section 2. The board of directors, at its first meeting after each annual meeting of shareholders, shall choose a president, one or more vice-presidents, a secretary and a treasurer, none of whom need be a member of the board, and the chairman of the board. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and 4 perform such duties as shall be determined from time to time by the board of directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualified (or, if earlier, as removed pursuant to the next sentence). Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE CHIEF EXECUTIVE OFFICER Section 6. The chief executive officer, if one is appointed, shall act as the chief executive officer of the corporation, shall (in lieu preside at all meetings of the shareholders and the board of directors in the absence of the chairman of the board), shall have executive management responsiblity for the business of the corporation, and shall see that all orders and resolutions of the board of directors are carried into effect, all subject to the supervision of the chairman of the board. THE PRESIDENT Section 7. The president shall be the chief operating officer of the corporation, shall (in in lieu of a chief executive officer) preside at all meetings of the shareholders and the board of directors in the absence of the chairman of the board, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect, all subject to the supervision of the chairman of the board and (if any) the chief executive officer. Section 8. The president may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation or otherwise, all as permitted by law, and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 9. The vice-president, if any, and if more than one, the vice-presidents in the order determined by the board of directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 10. The secretary shall attend all meetings of the board of directors and all meetings of the shareholders, and shall record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall 5 perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation, and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 11. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE CFO, TREASURER AND ASSISTANT TREASURERS Section 12. The chief financial officer shall supervise all financial affairs of the corporation, including matters delegated to the treasurer and any assistant treasurers, and shall perform such other duties as generally are consistent with the functions of chief financial officer. Section 13. The chief financial officer may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation or otherwise, all as permitted by law, and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 14. The treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 15. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control, belonging to the corporation. Section 16. The assistant treasurer or, if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 6 ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by certificates or shall be uncertificated, as determined by resolution of the board of directors from time to time. Each share certificate shall be signed by the chairman of the board or chief executive officer or president or a vice-president, and the secretary or chief executive officer, or by the board of directors, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue different classes of shares or different series within a class, there shall be set forth upon the face or back of any certificate therefor (or each such certificate shall have a statement that the corporation will furnish to any shareholder upon request and without charge), a full statement of the designations, preferences, limitations, and relative rights applicable to each class, and the variations in the relative rights, preferences, and limitations determined for each series and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. Section 2. The signatures of the persons signing a share certificate may be facsimiles. In case any person who has signed, or whose facsimile signature has been placed upon such certificate, shall have ceased to hold such office before such certificate is issued, the certificate is nevertheless valid. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation, which is alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFERS OF SHARES Section 4. Upon surrender, to the corporation or the transfer agent of the corporation, of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate shall be cancelled and the transaction recorded upon the books of the corporation. FIXING RECORD DATE Section 5. For the purpose of determining shareholders entitled to notice of, or to vote at, any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix a record date, in advance, that may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. 7 REGISTERED SHAREHOLDERS Section 6. The corporation shall be entitled to recognize a person, registered on its books as the owner of shares, as having the exclusive right to receive dividends and to vote with respect to shares shown to be owned, and as being exclusively liable for calls and assessments upon shares shown to be owned, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Wisconsin. LIST OF SHAREHOLDERS Section 7. A list of shareholders as of the record date, prepared in alphabetical order, arranged by voting group, showing the address of and the number of shares held by each shareholder, and certified by the corporate officer responsible for its preparation or the transfer agent, shall be open for inspection at any meeting of shareholders. ARTICLE XI GENERAL PROVISIONS DIVIDENDS Section 1. Subject to the law and any applicable provisions of the articles of incorporation, dividends may be declared by the board of directors at any regular or special meeting, and may be paid in cash, in property or in shares of the corporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time, in their absolute discretion, think proper, as a reserve fund to meet contingencies, for equalizing dividends, for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money, and notes of the corporation, shall be signed by such officer or officers, or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Wisconsin". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. 8 ARTICLE XII AMENDMENTS Section 1. These by-laws may be amended or repealed, or new by-laws may be adopted, by the affirmative vote of a majority of the board of directors at any regular or special meeting of the board, except to the extent (if any) that the articles of incorporation or law reserve this power to the shareholders. EX-4.6 8 ex-4_6.txt EXHIBIT 4.6 EXHIBIT 4.6 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF 16% SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009 OF DECRANE AIRCRAFT HOLDINGS, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, the undersigned, R. Jack DeCrane, Chief Executive Officer, and Richard J. Kaplan, Senior Vice President, Chief Financial Officer, Secretary and Treasurer, of DeCrane Aircraft Holdings, Inc., a Delaware corporation (hereinafter called the "CORPORATION"), pursuant to the provisions of Sections 103 and 151 of the General Corporation Law of the State of Delaware, do hereby make this Certificate of Designations and do hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation by the Certificate of Incorporation, the Board of Directors duly adopted the following resolutions: RESOLVED, that, pursuant to Article Four of the Certificate of Incorporation (which authorizes 10,000,000 shares of preferred stock, par value $0.01 per share ("PREFERRED STOCK"), of which no shares of Preferred Stock are currently issued and outstanding), the Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions, of a series of Preferred Stock. RESOLVED, that each share of such series of Preferred Stock shall rank equally in all respects and shall be subject to the following provisions: (1) NUMBER AND DESIGNATION. 700,000 shares of the Preferred Stock of the Corporation shall be designated as 16% Senior Redeemable Exchangeable Preferred Stock Due 2009 (the "SENIOR PREFERRED STOCK"). (2) RANK. The Senior Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution and winding up, rank prior to all classes of or series of common stock of the Corporation, including the Corporation's common stock, par value $0.01 per share ("COMMON STOCK"), and each other future class of capital stock of the Corporation, the terms of which provide that such class shall rank junior to the Senior Preferred Stock or the terms of which do not specify any rank relative to the Senior Preferred Stock. All equity securities of the Corporation to which the Senior Preferred Stock ranks prior (whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise), including the Common Stock, are collectively referred to herein as the "JUNIOR SECURITIES." All equity securities of the Corporation with which the Senior Preferred Stock ranks on a parity (whether with respect to dividends or upon liquidation, dissolution or winding up) are collectively referred to herein as the "PARITY SECURITIES." The respective definitions of Junior Securities and Parity Securities shall also include any rights or options exercisable for or convertible -2- into any of the Junior Securities and Parity Securities, as the case may be (other than convertible debt securities). The Senior Preferred Stock shall be subject to the creation of Junior Securities. (3) DIVIDENDS. (a) (i) The holders of shares of Senior Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends (subject to Sections 3(a)(ii) and (iii) hereof) at a rate equal to 16% per annum (computed on the basis of a 360 day year) (the "DIVIDEND RATE") on the Liquidation Value of each share of Senior Preferred Stock on and as of the most recent Dividend Payment Date (as defined below). In the event the Corporation is unable or shall fail to discharge its obligation to redeem all outstanding shares of Senior Preferred Stock pursuant to Section 5(b) or 5(c) hereof (including by operation of the proviso to Section 5(b)), the Dividend Rate shall increase by .25 percent per quarter (each, a "DEFAULT DIVIDEND") for each quarter or portion thereof following the date on which such redemption was required to be made until cured; PROVIDED that the aggregate increase shall not exceed 5%. Such dividends shall be payable in the manner set forth below in Sections 3(a)(ii) and (iii) quarterly on March 31, June 30, September 30 and December 31 of each year (unless such day is not a business day, in which event on the next succeeding business day) (each of such dates being a "DIVIDEND PAYMENT DATE" and each such quarterly period being a "DIVIDEND PERIOD"). Such dividends shall be cumulative from the date of issue, whether or not in any Dividend Period or Periods there shall be funds of the Corporation legally available for the payment of such dividends. (ii) Prior to the fifth anniversary of the issuance of the Senior Preferred Stock (the "CASH PAY DATE"), the Corporation shall, at its option, pay all dividends on shares of Senior Preferred Stock either in cash or by the issuance of additional shares of Senior Preferred Stock ("ADDITIONAL SHARES"). The Additional Shares shall be identical to all other shares of Senior Preferred Stock. For the purposes of determining the number of Additional Shares to be issued as dividends pursuant to this Section 3(a), such Additional Shares shall be valued at their Liquidation Value as provided in Section 4(c). Following the Cash Pay Date, each such dividend shall be payable in cash on the Liquidation Value per share of the Senior Preferred Stock (iii) All dividends paid under this Section 3(a) shall be paid to the holders of record of shares of the Senior Preferred Stock, as they appear on the stock records of the Corporation at the close of business on such record dates, not more than 60 days or less than 10 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time, without reference to any Dividend Payment Date, to holders of record on such date, not more than 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. If the Corporation determines to pay dividends in cash prior to the Cash Pay Date, the Corporation shall provide not less than five business days written notice of such event to the holders of Senior Preferred Stock. (b) Holders of shares of Senior Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the cumulative dividends, as herein provided, -3- on the Senior Preferred Stock. Except as provided in this Section 3, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Senior Preferred Stock that may be in arrears. (c) So long as any shares of the Senior Preferred Stock are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Parity Securities, for any period unless (whether or not such dividends are payable in cash) full cumulative dividends have been or contemporaneously are declared and paid in cash or declared in cash and a sum sufficient for the payment thereof set apart for such payment on the Senior Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of the dividend on such class or series of Parity Securities. When (whether or not such dividends are payable in cash) dividends are not paid in full in cash or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon shares of the Senior Preferred Stock and all dividends declared upon any other class or series of Parity Securities shall (in each case, whether or not payable in cash) be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Senior Preferred Stock and accumulated and unpaid on such Parity Securities. (d) (i) So long as any shares of the Senior Preferred Stock are outstanding, no dividends (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Junior Securities) shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (all such dividends, distributions, redemptions or purchases being hereinafter referred to as a "JUNIOR SECURITIES DISTRIBUTION") for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly (except by conversion into or exchange for Junior Securities). (ii) Section 3(d)(i) will not prohibit: (1) the repurchase, redemption or other acquisition or retirement for value of any capital stock and all warrants or other rights to acquire capital stock (collectively, "EQUITY INTERESTS") of the Corporation or DeCrane Holdings Co. ("HOLDINGS") held by any member of the Corporation's or Holdings' or any of the Corporation's subsidiaries' management pursuant to any management equity subscription agreement or stock option agreement and any dividend to Holdings to fund any such repurchase, redemption, acquisition or retirement, PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed: (x) $4.0 million in any calendar year with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum, without giving effect to the following clause (y), of $7.0 million in any calendar year; PLUS -4- (y) the aggregate cash proceeds received by the Corporation during such calendar year from any reissuance of Junior Securities by the Corporation or capital stock by Holdings to members of management of the Corporation and its subsidiaries; (2) the payment of dividends or the making of loans or advances by the Corporation to Holdings not to exceed $3.0 million in any fiscal year for costs and expenses incurred by Holdings in its capacity as a holding company or for services rendered by Holdings on behalf of the Corporation; (3) payments or distributions to Holdings pursuant to any tax sharing agreement or arrangement between the Corporation and Holdings, as the same may be amended from time to time; PROVIDED that in no event shall the amount permitted to be paid pursuant to all such agreements and/or arrangements exceed the amount the Corporation would be required to pay for income taxes were it to file a consolidated tax return for itself and its consolidated subsidiaries as if it were a corporation that was a parent of a consolidated group; (4) the payment of dividends or distributions on Common Stock, following the first public offering of Common Stock or Holdings' common stock after the date hereof, of up to 6.0% per annum of (i) the net proceeds received by the Corporation from such public offering of common stock, par value $0.01 per share, of the Company (the "COMMON STOCK") or (ii) the net proceeds received by the Corporation from such public offering of Holdings' common stock as common equity or preferred equity (other than Disqualified Stock (as defined in the Indenture dated as of October 15, 1998 by and among the Corporation, the guarantors party thereto and State Street Bank and Trust Company, as trustee, as in effect on the date hereof (the "EXISTING INDENTURE"))), other than, in each case, with respect to public offerings with respect to Common Stock or Holdings' common stock registered on Form S-8; (5) any other Junior Securities Distribution which, together with all other Junior Securities Distributions made pursuant to this clause (5) since the date of the Indenture, does not exceed $10.0 million; and (6) the redemption, repurchase, retirement, defeasance or other acquisition of any Equity Interests of the Corporation in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a subsidiary of the Corporation) of, other Equity Interests of the Corporation (other than any Disqualified Stock). (4) LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities, the holders of the shares of Senior Preferred Stock shall be entitled to receive an amount equal to the Liquidation Value of such share plus any accrued and unpaid cash dividends to the date -5- of distribution. "LIQUIDATION VALUE" on any date means, with respect to (x) any share of Senior Preferred Stock, the sum of (1) $100.00 per share and (2) all accrued and unpaid dividends on such share. Except as provided in the preceding sentences, holders of shares of Senior Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the shares of Senior Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any Parity Securities, then such assets, or the proceeds thereof, shall be distributed among the holders of shares of Senior Preferred Stock and any such other Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Senior Preferred Stock and any such other stock if all amounts payable thereon were paid in full. For the purposes of this Section (4), (i) a consolidation or merger of the Corporation with one or more corporations, or (ii) a sale or transfer of all or substantially all of the Corporation's assets, shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation. (b) Subject to the rights of the holders of any Parity Securities, after payment shall have been made in full to the holders of the Senior Preferred Stock, as provided in this Section (4), any other series or class or classes of Junior Securities shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Senior Preferred Stock shall not be entitled to share therein. (5) REDEMPTION. (a) REDEMPTION AT THE OPTION OF THE CORPORATION. At any time, to the extent the Corporation shall have funds legally available for such payment, the Corporation may, at its option, redeem shares of Senior Preferred Stock, at any time in whole but not in part, at redemption prices per share in cash set forth in the table below:
Year Beginning July 1, Percentage of Liquidation Value ---------------------- ------------------------------- Prior to 2005 116% 2005 108% 2006 106% 2007 104% 2008 102%
(b) REDEMPTION IN THE EVENT OF A CHANGE OF CONTROL. In the event of a Change of Control, the Corporation shall, to the extent it shall have funds legally available for such payment, offer to redeem all of the shares of Senior Preferred Stock then outstanding, and shall redeem the shares of Senior Preferred Stock of any holder of such shares that shall consent to such redemption, upon a date no later than 30 days following the Change of Control, at a redemption price per share equal to (x) 116% of Liquidation Value if such date of redemption is earlier than July 1, 2001, and (y) 101% of Liquidation Value if such date of redemption is on or after July 1, 2001, PROVIDED that the Corporation shall -6- not repurchase any Senior Preferred Stock pursuant to this Section 5(b) unless such repurchase complies with Section 4.07 of the Existing Indenture. "CHANGE OF CONTROL" means the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Corporation and its subsidiaries, taken as a whole, to any "person" or "group" (as such terms are used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), other than the Principals as (as defined in the Existing Indenture) and their Related Parties (as defined in the Existing Indenture); (b) the adoption of a plan for the liquidation or dissolution of the Corporation; (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of 50% or more of the voting power of the outstanding voting stock of the Corporation; or (d) the first day on which a majority of the members of the board of directors of the Corporation are not Continuing Members. "CONTINUING MEMBERS" means, as of any date of determination, any member of the board of directors of the Corporation who (a) was a member of such board of directors immediately after consummation of the Acquisition (as defined in the Existing Indenture) or (b) was nominated for election or elected to such board of directors with the approval of, or whose election to the board of directors was ratified by, at least a majority of the Continuing Members who were members of such board of directors at the time of such nomination or election or any successor Continuing Directors appointed by such Continuing Directors (or their successors). (c) MANDATORY REDEMPTION. To the extent the Corporation shall have funds legally available for such payment, on March 31, 2009, if any shares of the Senior Preferred Stock shall be outstanding, the Corporation shall redeem all outstanding shares of the Senior Preferred Stock, at a redemption price equal to the aggregate Liquidation Value, in cash, together with any accrued and unpaid cash dividends thereon to the date fixed for redemption, without interest. (d) STATUS OF REDEEMED SHARES. Shares of Senior Preferred Stock which have been issued and reacquired in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock; PROVIDED that no such issued and reacquired shares of Senior Preferred Stock shall be reissued or sold as Senior Preferred Stock. (e) FAILURE TO REDEEM. If the Corporation is unable or shall fail to discharge its obligation to redeem all outstanding shares of Senior Preferred Stock pursuant to Section 5(b) or 5(c) (each, a "MANDATORY REDEMPTION OBLIGATION"), such Mandatory Redemption Obligation shall be discharged as soon as the Corporation is able to discharge such Mandatory Redemption Obligation. If and so long as any Mandatory Redemption Obligation with respect to the Senior Preferred Stock shall not be fully discharged, the Corporation shall not (i) directly or indirectly, redeem, purchase, or otherwise acquire -7- any Parity Security or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Parity Securities (except in connection with a redemption, sinking fund or other similar obligation to be satisfied pro rata with the Senior Preferred Stock) or (ii) in accordance with Section 3(d), declare or make any Junior Securities Distribution, or, directly or indirectly, discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of the Junior Securities. (f) FAILURE TO PAY DIVIDENDS. Notwithstanding the foregoing provisions of this Section 5, unless full cumulative cash dividends (whether or not declared) on all outstanding shares of Senior Preferred Stock shall have been paid or contemporaneously are declared and paid or set apart for payment for all dividend periods terminating on or prior to the applicable redemption date, none of the shares of Senior Preferred Stock shall be redeemed, and no sum shall be set aside for such redemption, unless shares of Senior Preferred Stock are redeemed pro rata. (6) PROCEDURE FOR REDEMPTION. (a) In the event the Corporation shall redeem shares of Senior Preferred Stock pursuant to Section 5(a) or 5(c), notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; PROVIDED that neither the failure to give such notice nor any defect therein shall affect the validity of the giving of notice for the redemption of any share of Senior Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Senior Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (b) In the case of any redemption pursuant to Sections 5(a) or 5(c) hereof, notice having been mailed as provided in Section 6(a) hereof, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price of the shares called for redemption), dividends on the shares of Senior Preferred Stock so called for redemption shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such share shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (c) In the case of a redemption pursuant to Section 5(b) hereof, notice of such redemption shall be given by first class mail, postage prepaid, mailed not more than 60 days following the occurrence of the Change of Control and not less than 30 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; PROVIDED that neither the failure to give such notice nor any defect therein shall affect the validity of the giving of notice for the redemption of any share of Senior Preferred Stock to -8- be redeemed except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) that a Change of Control has occurred; (ii) the redemption date; (iii) the redemption price; (iv) that such holder may elect to cause the Corporation to redeem all or any of the shares of Senior Preferred Stock held by such holder; (v) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (vi) that dividends on the shares the holder elects to cause the Corporation to redeem will cease to accrue on such redemption date. Upon receipt of such notice, the holder shall, within 20 business days of receipt thereof, return such notice to the Corporation indicating the number of shares of Senior Preferred Stock such holder shall elect to cause the Corporation to redeem, if any. (d) In the case of a redemption pursuant to Section 5(b) hereof, notice having been mailed as provided in Section 6(c) hereof, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price of the shares called for redemption), dividends on such shares of Senior Preferred Stock as the holder elects to cause the Corporation to redeem shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such share shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (7) EXCHANGE. (a) Subject to the provisions of this Section 7 the Corporation may, at its option, at any time and from time to time on any Dividend Payment Date, exchange, to the extent it is legally permitted to do so, all, but not less than all, outstanding shares (and fractional shares) of Senior Preferred Stock for Exchange Debentures; PROVIDED that (i) on or prior to the date of exchange the Corporation shall have paid to or declared and set aside for payment to the holders of outstanding shares of Senior Preferred Stock all accrued and unpaid cash dividends on shares of Senior Preferred Stock through the exchange date in accordance with the next succeeding paragraph; (ii) no event of default under the indenture (as defined in such indenture) governing the Exchange Debentures shall have occurred and be continuing; (iii) no shares of Senior Preferred Stock are held on such date by the DLJIP Entities (as defined in the Investors' Agreement), or any of their Affiliates, or any of their Permitted Transferees and (iv) such exchange is permitted by the terms of all debt instruments to which the Corporation is subject. The principal amount of Exchange Debentures deliverable upon exchange of a share of Senior Preferred Stock, adjusted as hereinafter provided, shall be determined in accordance with the Exchange Ratio (as defined below). Cash dividends on any shares of Senior Preferred Stock exchanged for Exchange Debentures which have accrued but have not been paid as of the date of exchange shall be paid in cash. In no event shall the Corporation issue Exchange Debentures in denominations other than $1,000 or in an integral multiple thereof. Cash will be paid in lieu of any such fraction of an Exchange Debenture which would otherwise have been issued (which shall be determined with respect to the aggregate -9- principal amount of Exchange Debentures to be issued to a holder upon any such exchange). Interest will accrue on the Exchange Debentures from the date of exchange. Prior to effecting any exchange hereunder, the Corporation shall appoint a trustee to serve in the capacity contemplated by an indenture between the Corporation and such trustee, containing customary terms and conditions. The Exchange Ratio shall be, as of any Dividend Payment Date, $1.00 (or fraction thereof) of principal amount of Exchange Debenture for each $1.00 of (i) Liquidation Value plus (ii) accrued and unpaid cash dividends, if any, per share of Senior Preferred Stock held by a holder on the applicable exchange date. "AFFILIATES" shall have the meaning ascribed such term in the Investors' Agreement. "EXCHANGE DEBENTURES" means 16% Junior Subordinated Exchange Debentures due 2009 of the Corporation, to be issued pursuant to an indenture between the Corporation and a trustee, containing customary terms and conditions approved by the Board of Directors (which terms shall be substantially the same as in the Existing Indenture but shall provide that the Corporation shall not repurchase any Exchange Debentures pursuant to the asset sale or change of control provisions thereof in violation of Section 4.07 of the Existing Indenture and which shall be subordinated to all existing indebtedness except indebtedness expressly made PARI PASSU to the Exchange Debentures). "PERMITTED TRANSFEREES" shall have the meaning ascribed to such term in the Investors' Agreement. (b) PROCEDURE FOR EXCHANGE. (i) In the event the Corporation shall exchange shares of Senior Preferred Stock, notice of such exchange shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the exchange date, to each holder of record of the shares to be exchanged at such holder's address as the same appears on the stock register of the Corporation; PROVIDED that neither the failure to give such notice nor any defect therein shall affect the validity of the giving of notice for the exchange of any share of Senior Preferred Stock to be exchanged except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (A) the exchange date; (B) the number of shares of Senior Preferred Stock to be exchanged; (C) the Exchange Ratio; (D) the place or places where certificates for such shares are to be exchanged for notes evidencing the Exchange Debentures to be received by the exchanging holder; and (E) that dividends on the shares to be exchanged will cease to accrue on such exchange date. (ii) Prior to giving notice of intention to exchange, the Corporation shall execute and deliver with a bank or trust company selected by the Corporation an indenture containing customary terms and conditions. The Corporation will cause the Exchange Debentures to be authenticated on the Dividend Payment Date on which the exchange is effective, and will pay -10- interest on the Exchange Debentures at the rate and on the dates specified in such indenture from the exchange date. The Corporation will not give notice of its intention to exchange under Section 7(b)(i) hereof unless it shall file at the place or places (including a place in the Borough of Manhattan, The City of New York) maintained for such purpose an opinion of counsel (who may be an employee of the Corporation) to the effect that (i) the indenture has been duly authorized, executed and delivered by the Corporation, has been duly qualified under the Trust Indenture Act of 1939 (or that such qualification is not necessary) and constitutes a valid and binding instrument enforceable against the Corporation in accordance with its terms (subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles, and subject to such other qualifications as are then customarily contained in opinions of counsel experienced in such matters), (ii) the Exchange Debentures have been duly authorized and, when executed and authenticated in accordance with the provisions of the indenture and delivered in exchange for the shares of Senior Preferred Stock, will constitute valid and binding obligations of the Corporation entitled to the benefits of the indenture (subject as aforesaid), (iii) neither the execution nor delivery of the indenture or the Exchange Debentures nor compliance with the terms, conditions or provisions of such instruments will result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or agreement or instrument, known to such counsel, to which the Corporation or any of its subsidiaries is a party or by which it or any of them is bound, or any decree, judgment, order, rule or regulation, known to such counsel, of any court or governmental agency or body having jurisdiction over the Corporation and such subsidiaries or any of their properties, (iv) the Exchange Debentures have been duly registered for such exchange with the Securities and Exchange Commission under a registration statement that has become effectie under the Securities Act of 1933 (the "ACT") or that the exchange of the Exchange Debentures for the shares of Senior Preferred Stock is exempt from registration under the Act, and (v) the Corporation has sufficient legally available funds for such exchange such that such exchange is permitted under applicable law. (iii) Notice having been mailed as aforesaid, from and after the exchange date (unless default shall be made by the Corporation in issuing Exchange Debentures in exchange for the shares called for exchange), dividends on the shares of Senior Preferred Stock so called for exchange shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the Exchange Debentures and any rights such holder, upon the exchange, may have as a holder of the Exchange Debenture) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so exchanged (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such share shall be exchanged by the Corporation for the Exchange Debentures at the Exchange Ratio. In case fewer than all the shares represented by any such certificate are exchanged, a new certificate shall be issued representing the unexchanged shares without cost to the holder thereof. -11- (iv) Each exchange shall be deemed to have been effected immediately after the close of business on the relevant Dividend Payment Date, and the person in whose name or names any Exchange Debentures shall be issuable upon such exchange shall be deemed to have become the holder of record of the Exchange Debentures represented thereby at such time on such Dividend Payment Date. (v) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon exchange of the Senior Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (c) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of notes evidencing Exchange Debentures on exchange of the Senior Preferred Stock pursuant hereto; PROVIDED that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of Exchange Debentures in a name other than that of the holder of the Senior Preferred Stock to be exchanged and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (8) VOTING RIGHTS. (a) The holders of record of shares of Senior Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this Section 8 or as otherwise provided by law. (b) If and whenever (i) four consecutive or six total quarterly cash dividends payable on the Senior Preferred Stock have not been paid in full, (ii) for any reason (including the reason that funds are not legally available for a redemption), the Corporation shall have failed to discharge any Mandatory Redemption Obligation (including a redemption in the Event of a Change of Control pursuant to Section 5(b) hereof), (iii) the Corporation shall have failed to provide the notice required by Section 6(c) hereof within the time period specified in such section or (iv) the Corporation shall have failed to comply with Section 3(c), 3(d) or 8(c) hereof, the number of directors then constituting the Board of Directors shall be increased by two and the holders of a majority of the outstanding shares of Senior Preferred Stock, together with the holders of shares of every other series of preferred stock upon which like rights have been conferred and are exercisable (resulting from either the failure to pay dividends or the failure to redeem) (any such series is referred to as the "PREFERRED SHARES"), voting as a single class regardless of series, shall be entitled to elect the two additional directors to serve on the Board of Directors at any annual meeting of stockholders or special meeting held in place thereof, or at a special meeting of the holders of the Senior Preferred Stock and the Preferred Shares called as hereinafter provided. Whenever (i) all arrears in cash dividends on the Senior Preferred Stock and the Preferred Shares then outstanding shall have been paid and cash dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, (ii) the Corporation shall have fulfilled its Mandatory Redemption Obligation, (iii) the Corporation shall have fulfilled its obligation to provide notice as specified in subsection (b)(iii) hereof, or (iv) the Corporation shall have complied with Section 3(c), 3(d) or 8(c) hereof, as the case may be, then the right of the holders of the Senior Preferred Stock to elect such additional two directors shall cease (but subject -12- always to the same provisions for the vesting of such voting rights in the case of any similar future (i) arrearage in four consecutive or six total quarterly cash dividends, (ii) failure to fulfill any Mandatory Redemption Obligation, (iii) failure to fulfill the obligation to provide the notice required by Section 6(c) hereof within the time period specified in such section or (iv) failure to comply with Section 3(c), 3(d) or 8(c)) and the terms of office of all persons elected as directors by the holders of the Senior Preferred Stock shall forthwith terminate and the number of the Board of Directors shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of shares of Senior Preferred Stock and the Preferred Shares, the secretary of the Corporation may, and upon the written request of any holder of Senior Preferred Stock (addressed to the secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Senior Preferred Stock and of the Preferred Shares for the election of the two directors to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Corporation for a special meeting of the stockholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the secretary within 20 days after receipt of any such request, then any holder of shares of Senior Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation. The directors elected at any such special meeting shall hold office until the next annual meeting of the stockholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the directors elected by the holders of the Senior Preferred Stock and the Preferred Shares, a successor shall be elected by the Board of Directors, upon the nomination of the then-remaining director elected by the holders of the Senior Preferred Stock and the Preferred Shares or the successor of such remaining director, to serve until the next annual meeting of the stockholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. (c) Without the written consent of a majority of the outstanding shares of Senior Preferred Stock or the vote of holders of a majority of the outstanding shares of Senior Preferred Stock at a meeting of the holders of Senior Preferred Stock called for such purpose, the Corporation will not (i) amend, alter or repeal any provision of the Certificate of Incorporation (by merger or otherwise) so as to adversely affect the preferences, rights or powers of the Senior Preferred Stock; PROVIDED that any such amendment that decreases the dividend payable on, redemption prices for or the Liquidation Value of or changes the mandatory redemption date of the Senior Preferred Stock shall require the affirmative vote of holders of each share of Senior Preferred Stock at a meeting of holders of Senior Preferred Stock called for such purpose or written consent of the holder of each share of Senior Preferred Stock; or (ii) create, authorize or issue any class of stock ranking prior to, or on a parity with, the Senior Preferred Stock with respect to dividends or upon liquidation, dissolution, winding up or otherwise, or increase the authorized number of shares of any such class or series, or reclassify any authorized stock of the Corporation into any such prior or parity shares or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such prior or parity shares, except that the Corporation may, without such approval, create authorize and issue Parity Securities for the purpose of utilizing the proceeds from the issuance of such Parity Securities for the redemption or repurchase of all outstanding shares of Senior Preferred Stock in accordance with the terms hereof. -13- (d) In exercising the voting rights set forth in this Section 8, each share of Senior Preferred Stock shall have one vote per share, except that when any other series of preferred stock shall have the right to vote with the Senior Preferred Stock as a single class on any matter, then the Senior Preferred Stock and such other series shall have with respect to such matters one vote per $100 of Liquidation Value or other liquidation preference. Except as otherwise required by applicable law or as set forth herein, the shares of Senior Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers and the consent of the holders thereof shall not be required for the taking of any corporate action. (9) ASSET SALES. (a) The Corporation will not, and will not permit any of its Restricted Subsidiaries (as defined in the Existing Indenture) to, consummate any Asset Sale unless: (i) the Company or such subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value, evidenced by a resolution of the board of directors set forth in an officers' certificate delivered to holders of the Senior Preferred Stock, of the assets or Equity Interests issued or sold or otherwise disposed of, and (ii) at least 75% of the consideration therefor received by the Corporation or such subsidiary is in the form of cash or Cash Equivalents (as defined in the Existing Indenture) or property or assets that are used or useful in a Permitted Business, or the capital stock of any person engaged in a Permitted Business if, as a result of the acquisition by the Corporation or any subsidiary thereof, such Person becomes a subsidiary. The foregoing 75% requirement will not apply to any Asset Sale in which the cash or Cash Equivalents portion of the consideration received therefrom, determined in accordance with the next succeeding sentence, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with that 75% rule. The following types of assets will be deemed cash in applying that 75% test: (1) any liabilities as shown on the Corporation's most recent consolidated balance sheet that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Corporation or such subsidiary of the Corporation from further liability; (2) any securities, notes or other obligations received by the Corporation or any such subsidiary from such transferee that are contemporaneously converted by the Corporation or such subsidiary into cash or cash equivalents, to the extent of the cash or cash equivalents received; and (3) any Designated Noncash Consideration received by the Corporation or any of its subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (3) that is at that time outstanding, not to exceed 15% of Total Assets at the time of the receipt of such Designated Noncash Consideration, with the fair market -14- value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value. (b) DEFINITIONS. For purposes hereunder: "ASSET SALE" means: (i) the sale, lease, conveyance, disposition or other transfer (a "DISPOSITION") of any properties, assets or rights, provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole will be governed by Sections 5(b) and 10 and not by this Section 9; (ii) the issuance, sale or transfer by the Corporation or any of its subsidiaries of Equity Interests of any of the Corporation's Restricted Subsidiaries; in either case, whether in a single transaction or a series of related transactions that either have a fair market value in excess of $5.0 million or are for net proceeds in excess of $5.0 million. However, the following items shall not be deemed to be Asset Sales: (i) dispositions in the ordinary course of business; (ii) a disposition of assets by the Corporation to a subsidiary of the Corporation or by a subsidiary to the Corporation or to another subsidiary of the Corporation; (iii) a disposition of Equity Interests by a subsidiary of the Corporation or to another subsidiary of the Corporation; (iv) the sale and leaseback of any assets within 90 days of the acquisition thereof; (v) foreclosures on assets; (vi) any exchange of like property pursuant to Section 1031 of the Internal Revenue Code of 1986, for use in a Permitted Business; (vii) a Restricted Payment or Permitted Investment (as defined in the Existing Indenture) permitted by the Existing Indenture; and (viii) sales of accounts receivable, or participations therein, in connection with any receivables financing facility, pursuant to which the Corporation or any of its subsidiaries sells its accounts receivable to another subsidiary of the Corporation (a "RECEIVABLES FACILITY"). "DESIGNATED NONCASH CONSIDERATION" means the fair market value of non-cash consideration received by the Corporation or one of its subsidiaries in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an officers' certificate delivered to the holders -15- of Senior Preferred Stock, setting forth the basis of such valuation, executed by the principal executive officer and the principal financial officer of the Corporation, less the amount of cash or cash equivalents received in connection with a sale of such Designated Noncash Consideration. "PERMITTED BUSINESS" means the avionics manufacturing industry and any business in which the Corporation and its subsidiaries are engaged on the date hereof or any business reasonably related, incidental or ancillary thereto. "TOTAL ASSETS" means the total consolidated assets of the Corporation and its subsidiaries, as shown on the most recent balance sheet, excluding the footnotes of the Corporation, prepared in accordance with generally accepted accounting principles. (10) MERGER, CONSOLIDATION OR SALE OF ASSETS. The Corporation may not consolidate or merge with or into (whether or not the Corporation is the surviving corporation), or sell, assign, lease, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another person unless: (a) the Corporation is the surviving corporation, or the other person formed by or surviving any such consolidation or merger (if other than the Corporation) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; and (b) the person formed by or surviving any such consolidation or merger (if other than the Corporation) or the person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Corporation under the Senior Preferred Stock and the Registration Rights Agreement dated June 30, 2000 among the Corporation and the holders of Senior Preferred Stock party thereto; and (c) after giving effect to such transaction, the Corporation shall be in compliance with Section 5.01 of the Indenture dated as of October 15, 1998 by and among the Corporation, the guarantors party thereto and State Street Bank and Trust Company, as trustee, as in effect on the date hereof. (11) TRANSACTIONS WITH AFFILIATES. The Corporation will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of any Affiliate of the Corporation (each, an "AFFILIATE TRANSACTION"), unless: (a) such Affiliate Transaction is on terms that are no less favorable to the Corporation or such Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Corporation or such subsidiary of the Corporation with an unrelated person; and (b) the Corporation delivers to the holders of Senior Preferred Stock, with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, either: -16- (i) a resolution of the board of directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the board of directors; or (ii) an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transaction: (a) customary directors' fees, indemnification or similar arrangements or any employment agreement or other compensation plan or arrangement entered into by the Corporation or any of its subsidiaries in the ordinary course of business, including ordinary course loans to employees not to exceed (i) $5.0 million outstanding in the aggregate at any time, and (ii) $2.0 million to any one employee and consistent with the past practice of the Corporation or such subsidiary of the Corporation; (b) transactions between or among the Corporation and/or its subsidiaries; (c) payments of customary fees by the Corporation or any of its subsidiaries to Donaldson Lufkin & Jenrette Merchant Banking II, Inc. and its Affiliates made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which are approved by a majority of the board of directors in good faith; (d) any agreement as in effect on the date hereof or any amendment thereto which such amendment is not disadvantageous to the holders of the Senior Preferred Stock in any material respect, or any transaction contemplated thereby; (e) Restricted Payments and Permitted Investments permitted under the Existing Indenture; (f) payments and transactions in connection with the Global Technology Investment (as defined in the Existing Indenture), and the payment of fees and expenses with respect thereto; and (g) sales of accounts receivable, or participations therein, in connection with any Receivables Facility. (12) REPORTS. So long as any of the Senior Preferred Stock is outstanding, the Corporation will furnish the holders thereof with the quarterly and annual financial reports that the Corporation is required to file with the Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 or, in the event the Corporation is not required to file such reports, reports containing the financial information as would be required in such reports. -17- (13) GENERAL PROVISIONS. (a) The term "PERSON" as used herein means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. (b) The term "OUTSTANDING", when used with reference to shares of stock, shall mean issued shares, excluding shares held by the Corporation or a subsidiary of the Corporation. (c) The headings of the Sections, subsections, clauses and subclauses used herein are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. (d) Each holder of Senior Preferred Stock, by acceptance thereof, acknowledges and agrees that payments of dividends, interest, premium and principal on, and exchange, redemption and repurchase of, such securities by the Corporation are subject to restrictions on the Corporation contained in certain credit and financing agreements. IN WITNESS WHEREOF, DeCrane Aircraft Holdings, Inc. has caused this Certificate of Designations to be signed and attested by the undersigned this 30th day of June, 2000. DECRANE AIRCRAFT HOLDINGS, INC. By: ---------------------------------- Name: R. Jack DeCrane Title: Chief Executive Officer By: ---------------------------------- Name: Richard J. Kaplan Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer ATTEST: By: -------------------------- Name: Title: EX-4.7 9 ex-4_7.txt EXHIBIT 4.7 EXHIBIT 4.7 SENIOR PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT dated as of June 30, 2000 among DECRANE AIRCRAFT HOLDINGS, INC. and THE HOLDERS OF SENIOR PREFERRED STOCK PARTY HERETO TABLE OF CONTENTS ----------------
PAGE ARTICLE 1 DEFINITIONS Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE 2 REGISTRATION RIGHTS Section 2.01. Demand Registration . . . . . . . . . . . . . . . . . .3 Section 2.02. Incidental Registration . . . . . . . . . . . . . . . .5 Section 2.03. Holdback Agreements . . . . . . . . . . . . . . . . . .6 Section 2.04. Registration Procedures . . . . . . . . . . . . . . . .6 Section 2.05. Indemnification by the Company. . . . . . . . . . . . .9 Section 2.06. Indemnification by Participating Holders. . . . . . . 10 Section 2.07. Conduct of Indemnification Proceedings. . . . . . . . 10 Section 2.08. Contribution. . . . . . . . . . . . . . . . . . . . . 11 Section 2.09. Participation in Public Offering. . . . . . . . . . . 12 Section 2.10. Other Indemnification . . . . . . . . . . . . . . . . 12 Section 2.11. Cooperation by the Company. . . . . . . . . . . . . . 13 ARTICLE 3 MISCELLANEOUS Section 3.01. Entire Agreement. . . . . . . . . . . . . . . . . . . 13 Section 3.02. Binding Effect; Benefit . . . . . . . . . . . . . . . 13 Section 3.03. Assignability . . . . . . . . . . . . . . . . . . . . 13 Section 3.04. Amendment; Waiver; Termination. . . . . . . . . . . . 13 Section 3.05. Notices . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.06. Headings. . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.07. Counterparts. . . . . . . . . . . . . . . . . . . . . 15 Section 3.08. Applicable Law. . . . . . . . . . . . . . . . . . . . 15 Section 3.09. Specific Enforcement. . . . . . . . . . . . . . . . . 15 Section 3.10. Consent to Jurisdiction . . . . . . . . . . . . . . . 15
-i- SENIOR PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT SENIOR PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") dated as of June 30, 2000 by and among DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "COMPANY"), and the initial holders named on the signature pages hereto (the "INITIAL HOLDERS"). This Agreement is being entered into pursuant to a Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT") dated the date hereof by and among the Company, DeCrane Holdings Co. ("HOLDINGS") and the Initial Holders providing for the purchase by the Initial Holders from the Company and Holdings of 16% Senior Redeemable Exchangeable Preferred Stock of the Company (the "SENIOR PREFERRED STOCK") and warrants to purchase common stock, par value $0.01 per share of Holdings (the "WARRANTS"). In order to induce the Initial Holders to purchase the Senior Preferred Stock and the Warrants, the Company has agreed to provide them and subsequent holders of Senior Preferred Stock with registration rights with respect to the Senior Preferred Stock as set forth in this Agreement. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; PROVIDED that no stockholder of the Company shall be deemed an Affiliate of any other stockholder of the Company solely by reason of any investment in the Company. For the purpose of this definition, the term "CONTROL" (including with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "under common control with"), when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AFFILIATED EMPLOYEE BENEFIT TRUST" means any trust that is a successor to the assets held by a trust established under an employee benefit plan subject to ERISA or any other trust established directly or indirectly under such plan or any other such plan having the same sponsor. "BOARD" means the board of directors of the Company. -2- "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "COMMON STOCK" means the common stock, par value $0.01 per share, of the Company and any stock into which such Common Stock may thereafter be converted or changed, and "COMMON SHARES" means shares of Common Stock. "COMPANY SECURITIES" means the Common Stock and securities convertible into or exchangeable for Common Stock, preferred stock and options, warrants or other rights to acquire Common Stock, preferred stock or any other equity security issued by the Company. "HOLDER" means each Person (other than the Company) who owns any Registrable Securities. "PERSON" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PUBLIC OFFERING" means any primary or secondary public offering of Registrable Securities of the Company pursuant to an effective registration statement under the Securities Act other than pursuant to a registration statement filed in connection with a transaction of the type described in Rule 145 of the Securities Act or for the purpose of issuing securities pursuant to an employee benefit plan. "REGISTRABLE SECURITIES" means at any time, with respect to any Holder, any Senior Preferred Stock purchased under the Securities Purchase Agreement and any securities issued or issuable in respect of such Senior Preferred Stock by way of conversion, exchange, accretion, stock dividend, split or combination, recapitalization, merger, consolidation or other reorganization or otherwise until (i) a registration statement covering such Senior Preferred Stock has been declared effective by the SEC and such Senior Preferred Stock has been disposed of pursuant to such effective registration statement, (ii) such Senior Preferred Stock is sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met or (iii) such Senior Preferred Stock is otherwise transferred, the Company has delivered a new certificate or other evidence of ownership for such Senior Preferred Stock not bearing a restrictive legend and such Senior Preferred Stock may be resold without volume limitations without subsequent registration under the Securities Act. "REGISTRATION EXPENSES" means (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities registered), (iii) printing expenses, (iv) internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letter requested pursuant to Section 2.04(h) hereof), (vi) the reasonable fees and expenses of any special experts retained by the Company in connection with the applicable registration, (vii) reasonable fees -3- and expenses of up to one counsel for the Holders participating in the offering selected by Holders holding the majority of the Senior Preferred Stock to be sold for the account of all Holders in the offering, (viii) fees and expenses in connection with any review of underwriting arrangements by the National Association of Securities Dealers, Inc. (the "NASD"), including fees and expenses of any "QUALIFIED INDEPENDENT UNDERWRITER", and (ix) fees and disbursements of underwriters customarily paid by issuers or sellers of securities; but shall not include any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities, or any out-of-pocket expenses (except as set forth in clause (vii) above) of the Holders (or the agents who manage their accounts) or any fees and expenses of underwriter's counsel. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHELF REGISTRATION" means a shelf registration statement filed under Rule 415 under the Securities Act. "SUBSIDIARY" means, with respect to any Person, any entity of which ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "UNDERWRITTEN PUBLIC OFFERING" means a firmly underwritten Public Offering. ARTICLE 2 REGISTRATION RIGHTS Section 2.01. DEMAND REGISTRATION. (a) If the Company shall receive a written request by the holders of 40% of the outstanding Registrable Securities (the "REQUISITE HOLDERS") that the Company effect the registration under the Securities Act, which, at the option of the Requisite Holders, may be a Shelf Registration or an Underwritten Public Offering, of all or a portion of such Requisite Holders' Registrable Securities, and specifying the intended method of disposition thereof, then the Company shall promptly give written notice of such requested registration (a "DEMAND REGISTRATION") at least 10 days prior to the anticipated filing date of the registration statement relating to such Demand Registration to the Holders other than the Requisite Holders (the "OTHER HOLDERS") and thereupon will use its best efforts to effect, as expeditiously as possible, the registration under the Securities Act of: (i) the Registrable Securities then held by the Requisite Holders which the Company has been so requested to register by the Requisite Holders; and (ii) all other Registrable Securities of any Other Holder who has requested the Company to register by written request received by the Company within 5 days after the receipt by such Other Holder of such written notice given by the Company, -4- all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; PROVIDED that, subject to Section 2.01(d) hereof, the Company shall not be obligated to effect more than two Demand Registrations for the Holders. In no event will the Company be required to effect more than one Demand Registration within any four-month period. (b) Promptly after the expiration of the 5-day period referred to in Section 2.01(a)(ii) hereof, the Company will notify all the Holders to be included in the Demand Registration of the other Holders and the number of Registrable Securities requested to be included therein. The Requisite Holders requesting a registration under this Section may, at any time prior to the effective date of the registration statement relating to such registration, revoke such request, without liability to any of the other Holders, by providing a written notice to the Company revoking such request, in which case such request, so revoked, shall be considered a Demand Registration unless the participating Holders reimburse the Company for all costs incurred by the Company in connection with such registration or unless such revocation arose out of the fault of the Company. (c) The Company will pay all Registration Expenses in connection with any Demand Registration. (d) A registration requested pursuant to this Section shall not be deemed to have been effected unless the registration statement relating thereto (A) has become effective under the Securities Act and (B) has remained effective for a period of at least 180 days (or such shorter period in which all Registrable Securities of the Holders included in such registration have actually been sold thereunder); PROVIDED that if (i) after any registration statement requested pursuant to this Section becomes effective (x) such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court and (y) less than 75% of the Registrable Securities included in such registration statement is sold thereunder, or (ii) the Maximum Offering Size (as defined below) is reduced in accordance with Section 2.01(e) such that less than 66 2/3% of the Registrable Securities of the Holders sought to be included in such registration are included, such registration statement shall be at the sole expense of the Company and shall not be considered a Demand Registration and PROVIDED, FURTHER that, in the event of any Black Out Period (as defined), such registration statement will remain effective for a period of time equal to 180 days plus the length of such Black Out Period. (e) If a Demand Registration involves an Underwritten Public Offering and the managing underwriter shall advise the Company and the Selling Holders that, in its view, (i) the number and/or type of Registrable Securities requested to be included in such registration (including any securities which the Company proposes to be included which are not Registrable Securities) or (ii) the inclusion of some or all of the Registrable Securities owned by the Holders, in any such case, exceeds the largest number and/or type of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold (the "MAXIMUM OFFERING SIZE"), the Company will include in such registration, in the priority listed below, up to the Maximum Offering Size: -5- (A) first, all Registrable Securities requested to be registered by the Holders (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of shares of Registrable Securities so requested to be registered); and (B) second, any securities proposed to be registered by the Company. (f) Notwithstanding anything to the contrary in this Section 2.01, the Company shall not be required to file, amend or supplement any registration statement, any related prospectus or any document incorporated therein by reference, for a period (a "BLACK OUT PERIOD") not to exceed, for so long as this Agreement is in effect, an aggregate of 60 days in any calendar year, in the event that (i) in the case of an amendment or supplement only, an event occurs and is continuing as a result of which such registration statement pursuant to a Demand Registration, any related prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) in all cases, (A) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction which has not yet been publicly disclosed; PROVIDED that such Black Out Period shall be extended for any period, not to exceed an aggregate of 30 days in any calendar year, during which the SEC is reviewing any proposed amendment or supplement to the registration statement, any related prospectus or any document incorporated therein by reference which has been filed by the Company. Section 2.02. INCIDENTAL REGISTRATION. (a) If the Company proposes to register any Company Securities under the Securities Act (other than a registration of Common Shares (A) issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or (B) in connection with a direct or indirect acquisition by the Company of another company), whether or not for sale for its own account, it will each such time, subject to the provisions of Section 2.02(b), give prompt written notice at least 10 days prior to the anticipated filing date of the registration statement relating to such registration to each Holder, which notice shall set forth such Holder's rights under this Section 2.02 and shall offer such Holders the opportunity to include in such registration statement such number of Registrable Securities as each such Holder may request (an "INCIDENTAL REGISTRATION"). Upon the written request of any such Holder made within 5 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by such Holders, to the extent required to permit the disposition of the Registrable Securities so to be registered; PROVIDED that (1) if such registration involves an Underwritten Public Offering, all such Holders requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected as provided in Section 2.04(f) on the same terms and conditions as apply to the Company and (2) if, at any time after giving written notice of its intention to register any stock pursuant to this Section 2.02(a) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all such Holders and, thereupon, -6- shall be relieved of its obligation to register any Registrable Securities in connection with such registration (without prejudice, however, to the rights of any Holder under Section 2.01). No registration effected under this Section 2.02 shall relieve the Company of its obligations to effect a Demand Registration to the extent required by Section 2.01. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.02. (b) If a registration pursuant to this Section 2.02 involves an Underwritten Public Offering (other than in the case of an Underwritten Public Offering requested by a Holder in a Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 2.01(e) shall apply) and the managing underwriter advises the Company that, in its view, the number and/or type of shares of Registrable Securities which the Company and the Holders intend to include in such registration exceeds the Maximum Offering Size, the Company will include in such registration, in the priority listed below, up to the Maximum Offering Size: (i) first, so much of the securities proposed to be registered for the account of the Company as would not cause the offering to exceed the Maximum Offering Size; and (ii) second, all Registrable Securities requested to be included in such registration pursuant to Section 2.02 (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of shares of Registrable Securities requested to be so included). Section 2.03. HOLDBACK AGREEMENTS. If any registration of Registrable Securities shall be in connection with an Underwritten Public Offering, each Holder agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144, or any successor provision, under the Securities Act, of any Registrable Securities (in each case, other than as part of such Underwritten Public Offering) during the 14 days prior to the effective date of such registration statement (except as part of such registration) or during the period after such effective date equal to the lesser of (i) such period of time as agreed between such managing underwriter and the Company and (ii) 180 days (such lesser period, the "APPLICABLE HOLDBACK PERIOD"). Section 2.04. REGISTRATION PROCEDURES. Whenever Holders request that any Registrable Securities be registered pursuant to Section 2.01 or 2.02, the Company will, subject to the provisions of such Sections, use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the SEC a registration statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days. -7- (b) The Company will, if requested, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Holder holding Registrable Securities covered by such registration statement and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter the Company will furnish to such Holder and underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. (c) After the filing of the registration statement, the Company will promptly notify each Holder holding Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (d) The Company will use its best efforts to (i) register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions in the United States as any Holder holding such Registrable Securities reasonably (in light of such Holder's intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the Registrable Securities owned by such Holder; PROVIDED that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (e) The Company will immediately notify each Holder holding such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly prepare and make available to each such Holder any such supplement or amendment. (f) (i) The Requisite Holders will have the right, in their sole discretion, to select an underwriter or underwriters in connection with any Public Offering resulting from the exercise by any such Requisite Holders of a Demand Registration, which underwriter or underwriters may include any Affiliate of any Holder and (ii) the Company will select an underwriter or underwriters in connection with any other Public Offering. In connection with any Public Offering, the Company will enter into customary agreements (including an underwriting -8- agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities in any such Public Offering, including the engagement of a "qualified independent underwriter" in connection with the qualification of the underwriting arrangements with the NASD. (g) Upon the execution of confidentiality agreements in form and substance satisfactory to the Company, the Company will make available for inspection by any Holder and any underwriter participating in any disposition pursuant to a registration statement being filed by the Company pursuant to this Section 2.04 and any attorney, accountant or other professional retained by any such Holder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each Holder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the Company Securities or its Affiliates unless and until such is made generally available to the public. Each Holder further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (h) The Company will furnish to each such Holder and to each such underwriter, if any, a signed counterpart, addressed to such underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as a majority of such Holders or the managing underwriter therefor reasonably requests. (i) The Company will otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its stockholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. The Company may require each such Holder to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration. -9- Each such Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.04(e), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.04(e), and, if so directed by the Company, such Holder will deliver to the Company all copies, other than any permanent file copies then in such Holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event that the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 2.04(a)) by the number of days during the period from and including the date of the giving of notice pursuant to Section 2.04(e) to the date when the Company shall make available to such Holder a prospectus supplemented or amended to conform with the requirements of Section 2.04(e). Each Holder agrees that, upon receipt of the notice from the Company of the commencement of a Black Out Period (in each case, a "BLACK OUT NOTICE"), such Person will forthwith discontinue disposition of Registrable Securities pursuant to the applicable registration statement until such Person is advised in writing by the Company of the termination of the Black Out Period. Each Person receiving a Black Out Notice hereby agrees that it will either (i) destroy any prospectuses, other than permanent file copies, then in such Person's possession which have been replaced by the Company with more recently dated prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Person's possession of the prospectus covering such Registrable Securities that was current at the time of receipt of the Black Out Notice. Section 2.05. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Holder holding Registrable Securities covered by a registration statement, its officers, directors and agents, and each person, if any, who controls such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by such Holder or on such Holder's behalf expressly for use therein; PROVIDED that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any such loss, claim, damage, liability or expense results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such person if it is determined that the Company has provided such prospectus and it was the responsibility of such Holder to provide such person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect -10- giving rise to such loss, claim, damage, liability or expense. The Company also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Holders provided in this Section 2.05. Section 2.06. INDEMNIFICATION BY PARTICIPATING HOLDERS. Each Holder holding Registrable Securities included in any registration statement agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Holder, but only (i) with respect to information furnished in writing by such Holder or on such Holder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any loss, claim, damage, liability or expense described in Section 2.05 results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the Person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that it was the responsibility of such Holder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. Each such Holder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 2.06. As a condition to including Registrable Securities in any registration statement filed in accordance with Article 2 hereof, the Company may require that it shall have received an undertaking reasonably satisfactory to it from anyunderwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities. Section 2.07. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 2, such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses; PROVIDED that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local -11- counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnifid Party from all liability arising out of such proceeding. Section 2.08. CONTRIBUTION. If the indemnification provided for in this Article 2 is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) as between the Company and the Holders holding Registrable Securities covered by a registration statement on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such Holders on the one hand and the underwriters on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such Holders on the one hand and of such underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations and (ii) as between the Company on the one hand and each such Holder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such Holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and such Holders on the one hand and such underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and such Holders bear to the total underwriting discounts and commissions received by such underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and such Holders on the one hand and of such underwriterson the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and such Holders or by such underwriters. The relative fault of the Company on the one hand and of each such Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.08 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount -12- paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 2.08, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Holder were offered to the public exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each such Holder's obligation to contribute pursuant to this Section 2.08 is several in the proportion that the proceeds of the offering received by such Holder bears to the total proceeds of the offering received by all such Holders and not joint. Section 2.09. PARTICIPATION IN PUBLIC OFFERING. No Person may participate in any Public Offering hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights. Section 2.10. OTHER INDEMNIFICATION. Indemnification similar to that specified herein (with appropriate modifications) shall be given by the Company and each Holder participating therein with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. Section 2.11. COOPERATION BY THE COMPANY. In the event any Holder shall transfer any Registrable Securities pursuant to Rule 144A under the Securities Act, the Company shall cooperate, to the extent commercially reasonable, with such Holder and shall provide to such Holder such information as such Holder shall reasonably request. ARTICLE 3 MISCELLANEOUS Section 3.01. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. -13- Section 3.02. BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, expressed or implied, shall confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 3.03. ASSIGNABILITY. This Agreement shall not be assignable by any party hereto, except that any Person acquiring Registrable Securities who executes and delivers to the Company an agreement to be bound by this Agreement and shall thenceforth be a "HOLDER". Any Holder who ceases to own beneficially any Senior Preferred Stock shall cease to be bound by the terms hereof (other than the provisions of Sections 2.05, 2.06, 2.07, 2.08, and 2.10 applicable to such Holder with respect to any offering of Registrable Securities completed before the date such Holder ceased to own any Registrable Securities). Section 3.04. AMENDMENT; WAIVER; TERMINATION. No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by the Company with the approval of the Board and Holders holding at least 75% of the outstanding Registrable Securities. Section 3.05. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmissions and shall be given, if to the Company, to: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue Suite 180 El Segundo, California 90245 Attention: R. Jack DeCrane Fax: (310) 643-0746 with a copy to: Morgan, Lewis & Bockius LLP 300 South Grand Avenue Twenty-Second Floor Los Angeles, California 90071 Attention: Peter Wallace, Esq. Fax: (213) 612-2554 if to any Initial Holder, to: DLJ Investment Partners II, Inc. 277 Park Avenue -14- New York, New York 10172 Attention: Michelle Bergman Fax: (212) 892-7272 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Attention: John Schuster, Esq. Fax: (212) 269-5420 All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified mail, return receipt requested, posted within one Business Day, or by personal delivery, whether courier or otherwise, made within two Business Days after the date of such facsimile transmission. Any Person who becomes a Holder shall provide its address and fax number to the Company, which shall promptly provide such information to each other Holder. Section 3.06. HEADINGS. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. Section 3.07. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Section 3.08. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE. Section 3.09. SPECIFIC ENFORCEMENT. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies which may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. Section 3.10. CONSENT TO JURISDICTION. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District -15- of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 3.05 shall be deemed effective service of process on such party. [SIGNATURE PAGES FOLLOW] S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: --------------------------------- Name: Title: DLJ INVESTMENT PARTNERS II, L.P. By: DLJ INVESTMENT PARTNERS II, INC., as managing general partner By: --------------------------------- Name: Title: DLJ INVESTMENT PARTNERS, L.P. By: DLJ INVESTMENT PARTNERS, INC. as, managing general partner By: --------------------------------- Name: Title: S-2 DLJ INVESTMENT FUNDING II, INC. By: --------------------------------- Name: Title: DLJ ESC II, L.P. By: DLJ LBO PLANS MANAGEMENT CORPORATION, as managing general partner By: --------------------------------- Name: Title: EX-10.1 10 ex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT dated as of June 30, 2000 among DECRANE AIRCRAFT HOLDINGS, INC. DECRANE HOLDINGS CO. and THE PURCHASERS PARTY HERETO TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS Section 1.1. Definitions.................................................1 ARTICLE II PURCHASE AND SALE OF SECURITIES; TERMS OF SECURITIES Section 2.1. Commitment to Purchase......................................3 Section 2.2. Procedures..................................................3 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1. Incorporation of Representations and Warranties in Credit Agreement.............................................4 Section 3.2. Authorization, Execution and Enforceability..................4 Section 3.3. Capitalization...............................................5 Section 3.4. Solicitation.................................................5 Section 3.5. Non-fungibility..............................................5 Section 3.6. Governmental Authorization...................................5 Section 3.7. Noncontravention.............................................5 Section 3.8. Litigation...................................................6 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS Section 4.1. Purchase for Investment; Authority; Binding Agreement........6 ARTICLE V CONDITIONS PRECEDENT TO PURCHASE Section 5.1. Conditions to Purchasers' Obligation at Takedown.............7 Section 5.2. Conditions to the Company's Obligations......................8 -i- ARTICLE VI COVENANTS Section 6.1. Limitation on Dividends on and Redemption of Holdings Capital Stock................................................8 Section 6.2. FINANCIAL INFORMATION........................................9 ARTICLE VII MISCELLANEOUS Section 7.1. Notices.....................................................10 Section 7.2. No Waivers, Amendments......................................10 Section 7.3. Indemnification.............................................10 Section 7.4. Expenses....................................................11 Section 7.5. Payment.....................................................11 Section 7.6. Successors and Assigns......................................11 Section 7.7. Brokers.....................................................11 Section 7.8. New York Law; Submission to Jurisdiction; Waiver of Jury Trial.......................................................11 Section 7.9. Severability................................................12 Section 7.10. Counterparts................................................12 Section 7.11. Confidentiality.............................................12 Section 7.12. Survival of Representations and Warranties..................13 Section 7.13. Construction................................................13 Section 7.14. Integration.................................................13 Section 7.15. Headings....................................................13 SCHEDULES Schedule 2.1 Commitments to Purchase Schedule 3.3 Pro Forma Capitalization of Holdings and the Company EXHIBITS Exhibit A Form of Senior Preferred Stock Certificate of Designations, Preferences and Rights Exhibit B Form of Senior Preferred Stock Registration Rights Agreement Exhibit C Form of Warrant Exhibit D Form of Amended and Restated Investors' Agreement Exhibit E Form of Credit Agreement Amendment -ii- SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "COMPANY"), DeCrane Holdings Co., a Delaware corporation ("HOLDINGS" and, together with the Company, the "ISSUERS") and the purchasers listed on the signature pages hereto (the "PURCHASERS"). The parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1. DEFINITIONS. The following terms, as used herein, have the following meanings: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For the purpose of this definition, the term "CONTROL" (including with correlative meanings, the term "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" means this Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "AMENDED AND RESTATED INVESTORS' AGREEMENT" means the Amendment and Restated Investor's Agreement, substantially in the form set forth on EXHIBIT D hereto. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "COMPANY" is defined in the preamble. "CREDIT AGREEMENT" means the Third Amended and Restated Credit Agreement, dated as of May 11, 2000, among the Company, the lenders party thereto, DLJ Capital Funding, Inc., as syndication agent, and The First National Bank of Chicago, as administrative agent for the lenders, as amended, modified, amended and restated, renewed, refunded, replaced or refinanced from time to time to the date of this Agreement. "CREDIT AGREEMENT AMENDMENT" means the First Amendment to the Credit Agreement, substantially in the form set forth on EXHIBIT E hereto. "DIVIDEND PERIOD" has the meaning given to such term in the Senior Preferred Stock Certificate of Designations. "DLJ HOLDERS" means DLJ Investment Partners II, L.P. and any Affiliate thereof holding Securities. "DOLLARS" or "$" mean lawful currency of the United States of America. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FINANCING DOCUMENTS" means this Agreement, the Senior Preferred Stock Certificate of Designations, the Warrants, the Senior Preferred Stock Registration Rights Agreement and the Amended and Restated Investors' Agreement. "HOLDER" means any holder of any Securities. "HOLDINGS" is defined in the preamble. "HOLDINGS CAPITAL STOCK" means all outstanding capital stock of Holdings. "HOLDINGS COMMON STOCK" means the authorized common stock, par value $.01 per share, of Holdings. "ISSUANCE DATE" is defined in Section 2.1. "ISSUERS" is defined in the preamble. "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the business, operations, properties, assets, financial condition or prospects of the Issuers and their respective subsidiaries, taken as a whole, or (ii) the material impairment of the ability of the Issuers to perform their obligations under the Financing Documents or the Credit Agreement Amendment, or of the Holders to enforce such obligations under the Financing Documents. "PARITY SECURITIES" has the meaning given to such term in the Senior Preferred Stock Certificate of Designations. "PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or any agency or political subdivision thereof) or other entity of any kind. "PURCHASERS" is defined in the preamble. "SECURITIES" means the Senior Preferred Stock and the Warrants. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR PREFERRED STOCK" means the Company's 16% Senior Redeemable Exchangeable Preferred Stock due 2009, with such terms described in the Senior Preferred Stock Certificate of Designations. -2- "SENIOR PREFERRED STOCK CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations Preferences and Rights substantially in the form of EXHIBIT A hereto. "SENIOR PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT" means the Senior Preferred Stock Registration Rights Agreement by and among the Company and the Purchasers, substantially in the form set forth on EXHIBIT B hereto. "WARRANTS" means Class B Warrants to purchase shares of Holdings Common Stock, substantially in the form set forth on EXHIBIT C hereto. "WARRANT SHARES" has the meaning given to such term in the Warrants. ARTICLE II PURCHASE AND SALE OF SECURITIES; TERMS OF SECURITIES Section 2.1. COMMITMENT TO PURCHASE. Subject to the terms and conditions set forth herein and in reliance on the representations and warranties of the Issuers contained herein and their representations and warranties in the other Financing Documents, the Issuers agree to issue and sell to the Purchasers, and each Purchaser agrees to purchase on the date hereof or such other date as the Issuers and Purchasers agree (the "ISSUANCE DATE") the amount of Securities set forth opposite such Purchaser's name Schedule 2.1. The purchase price shall be equal to the aggregate liquidation preference of Senior Preferred Stock being purchased by such Purchaser. Section 2.2. PROCEDURES. (a) On the Issuance Date, the Purchasers, severally and not jointly, shall deliver by wire transfer, to the account number of the Issuers specified by the Issuers in writing no later than 10:00 A.M. (New York City time) on the Issuance Date, immediately available funds in an amount equal to the aggregate purchase price of the Securities to be purchased by the Purchasers hereunder on such Issuance Date, less the aggregate amount of expenses payable to the Purchasers on such date pursuant to Section 7.4. (b) On the Issuance Date, against payment as set forth in clause (a) above, the Issuers shall deliver to each Purchaser a single certificate representing Senior Preferred Stock and a single Warrant representing the amount of such Securities to be purchased by such Purchaser registered in the name of such Purchaser, or, if requested by such Purchaser, separate certificates representing Senior Preferred Stock and/or Warrants in such other denominations and registered in such name or names as shall be designated by such Purchaser by notice to the Company at least one Business Day prior to the Issuance Date. -3- ARTICLE III REPRESENTATIONS AND WARRANTIES Each Issuer represents and warrants, jointly and severally, to the Purchasers as set forth below: Section 3.1. INCORPORATION OF REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. Each Issuer hereby represents and warrants, for the benefit of the Purchasers and the Holders from time to time of the Securities, that the representations and warranties contained in the following sections of the Credit Agreement are true and correct as of the Issuance Date: (a) 5.1 (Organization, Powers, Qualifications, Good Standing, Business and Subsidiaries); (b) 5.3 (Financial Condition); (c) 5.4 (No Material Adverse Change; No Restricted Junior Payments); (d) 5.5 (Title to Properties; Liens; Real Property); (e) 5.6 (Litigation; Adverse Facts); (f) 5.7 (Payment of Taxes); (g) 5.8 (Governmental Regulation); (h) 5.9 (Securities Activities); (i) 5.10 (Employee Benefit Plans); (j) 5.11 (Environmental Protection); (k) 5.12 (Employee Matters); (l) 5.13 (Solvency); (m) 5.15 (Disclosure); (n) 5.16 (Year 2000 Compliance). Section 3.2. AUTHORIZATION, EXECUTION AND ENFORCEABILITY. Each of the Financing Documents to which it is a party and the Credit Agreement Amendment constitutes its valid and binding agreement of such party enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and equitable principles of general applicability. The shares of Senior Preferred Stock being sold to the Purchasers have been duly and validly authorized and when issued and delivered against payment therefor in accordance -4- with the terms hereof, will be validly issued, fully paid, non-assessable and free of preemptive rights. The Warrants, when executed and delivered, will constitute valid and binding obligations of Holdings in accordance with their terms. Holdings will reserve and keep available for issuance upon exercise of the Warrants the total number of Warrant Shares deliverable upon exercise of all of the Warrants. The issuance of the Warrant Shares has been validly authorized and, when issued and sold in accordance with the Warrants, will be validly issued, fully paid, nonassessable and free of preemptive rights. Section 3.3. CAPITALIZATION. At the Issuance Date, after giving effect to the consummation of the issuance and sale of Securities hereunder, the capitalization of the Issuers will be as set forth on Schedule 3.3. Except as set forth on Schedule 3.3, there are no subscriptions, options, warrants, rights, convertible securities, exchangeable securities or other agreements or commitments of any character pursuant to which either Issuer is required to issue or purchase any shares of its capital stock. Section 3.4. SOLICITATION. No form of general solicitation or general advertising was used by the Issuers or, to the best of their knowledge, any other Person acting on behalf of the Issuers, in connection with the offer and sale of the Securities. Neither the Issuers nor any Person acting on behalf of the Issuers has, either directly or indirectly, sold or offered for sale to any Person any of the Securities or any other security of the Issuers similar to the Senior Preferred Stock or the Warrants, except as contemplated by this Agreement, and the Issuers represent that neither the Issuers nor any person acting on their behalf other than the Purchasers and its Affiliates will sell or offer for sale to any Person any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or sale of any of the Senior Preferred Stock or Warrants within the provisions of Section 5 of the Securities Act. Section 3.5. NON-FUNGIBILITY. When the Securities are issued and delivered pursuant to this Agreement, neither the Senior Preferred Stock nor the Warrants will be of the same class (within the meaning of Rule 144A under the Securities Act) as securities which are (i) listed on a national securities exchange registered under Section 6 of the Exchange Act or (ii) quoted in a U.S. automated inter-dealer quotation system. Section 3.6. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by the Issuers of this Agreement and the consummation of the transactions contemplated hereby require no material order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official except such as have been made or obtained. Section 3.7. NONCONTRAVENTION. The execution, delivery and performance by the Issuers of this Agreement and the consummation of the transactions contemplated hereby does not and will not (i) violate the articles of incorporation or by-laws of the Issuers, (ii) violate any material applicable law, rule, regulation, judgment, injunction, order or decree, (iii) require any material consent (other than consents obtained in satisfaction of conditions precedent set forth in Article V) or other action by any Person under, constitute a material default under, or give rise to any material right of termination, cancellation or acceleration of any right or obligation of the Issuers or to a loss of any material benefit to which the Issuers are entitled under any provision of any agreement or other in -5- strument binding upon the Issuers or any of the Issuers' assets or properties or (iv) result in the creation or imposition of any material lien on any property or asset of the Issuers. Section 3.8. LITIGATION. There is no action, suit, investigation or proceeding pending against, or to the knowledge of the Issuers, threatened against or affecting the Issuers or any of their properties before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to have a material adverse effect on the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS Section 4.1. PURCHASE FOR INVESTMENT; AUTHORITY; BINDING AGREEMENT. Each of the Purchasers represents and warrants, severally and not jointly, as to itself only, to the Issuers that: (a) such Purchaser is an Accredited Investor within the meaning of Rule 501(a) under the Securities Act and the Securities to be acquired by it pursuant to this Agreement are being acquired for its own account without a view toward distribution in violation of the Securities Act and the Purchaser will not offer, sell, transfer, pledge, hypothecate or otherwise dispose of the Securities unless pursuant to a transaction either registered under, or exempt from registration under, the Securities Act; (b) the execution, delivery and performance of this Agreement and the purchase of the Securities pursuant hereto are within such Purchaser's corporate powers and have been duly and validly authorized by all requisite corporate action; (c) this Agreement has been duly executed and delivered by such Purchaser; (d) this Agreement constitutes a valid and binding agreement of such Purchaser enforceable in accordance with its terms; and (e) such Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and such Purchaser is capable of bearing the economic risks of such investment. ARTICLE V CONDITIONS PRECEDENT TO PURCHASE Section 5.1. CONDITIONS TO PURCHASERS' OBLIGATION AT TAKEDOWN. The obligation of the Purchasers (which is several and not joint) to purchase the Securities to be issued and sold by the Issuers on the Issuance Date is subject to the satisfaction of the following conditions contemporaneously with such purchase: -6- (a) The Purchasers shall have received copies of each of the Financing Documents and the Credit Agreement Amendment, each of which shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior consent of the Purchasers. (b) There shall exist no action, suit, investigation, litigation or proceeding pending or to the Company's knowledge threatened in any court or before any arbitrator or any governmental instrumentality that could reasonably be expected to (A) have a material adverse effect on any Financing Document, the Credit Agreement Amendment or the other transactions contemplated thereby or hereby or (B) result in a Material Adverse Effect. (c) The Purchasers shall have received an opinion, dated on or prior to the Issuance Date, of Morgan Lewis & Bockius LLP in form and substance satisfactory to the Purchasers. (d) All fees and expenses payable to the Purchasers on or prior to the Issuance Date (other than amounts to be netted against the purchase price of the Securities pursuant to Section 2.2(a)) shall have been paid in full. (e) The representations and warranties of the Issuers contained in the Financing Documents shall be true and correct in all material respects on and as of the Issuance Date as if made on and as of such date (unless stated to relate solely 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) and each Issuer shall have performed and complied with all covenants and agreements required by the Financing Documents and the Credit Agreement Amendment to be performed by it or complied with by it at or prior to the Issuance Date, and the Purchasers shall have received certificates from authorized officers of the Issuers to such effect. (f) The Company's certificate of incorporation shall have been amended to authorize the issuance of the Senior Preferred Stock and the Senior Preferred Stock Certificate of Designations shall have been duly filed at the office of the Secretary of State of the State of Delaware. (g) The Purchasers shall have received the Warrants and certificates representing the Senior Preferred Stock to be issued on the Issuance Date, duly executed in the denominations and registered in the names specified pursuant to Section 2.2. (h) The Purchasers shall have received a certificate of the Secretary or Assistant Secretary of each of the Issuers, dated as of a date reasonably satisfactory to the Purchasers, certifying (A) (i) that attached thereto is a true, complete and correct copy of resolutions duly adopted by the Board of Directors of such Issuer authorizing (1) the execution, delivery and performance of the Financing Documents to which it is a party and the Credit Agreement Amendment, and (2) the transactions contemplated hereby, and (ii) that such resolutions have not been amended, modified, revoked or rescinded, (B) as to the incumbency and specimen signature of each officer executing any Financing Documents or the Credit Agreement Amendment on its behalf, and (C) true and complete copies of its constituent documents, and such certificates and the resolutions attached thereto shall be in form and substance satisfactory to the Purchasers. -7- (i) The purchase of the Securities by the Purchasers shall not be prohibited by any applicable law, court order or governmental regulation. (j) Since December 31, 1999, there shall not have occurred any material adverse change in the business, assets, financial condition, operations or properties or prospects of the Issuers and their respective subsidiaries, taken as a whole. (k) The Purchasers shall have received such additional certificates, legal and other opinions and documentation as they shall reasonably request. Section 5.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the Issuers to issue and sell the Securities to the Purchasers pursuant to this Agreement are subject to the satisfaction, at or prior to the Issuance Date, of the following conditions: (a) The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects on and as of the Issuance Date as if made on and as of such date. (b) The issuance and sale of the Securities shall not be prohibited by any applicable law, court order or governmental regulation. (c) Contemporaneously therewith, the Issuers shall have received the purchase price for the Securities to be purchased by the Purchasers in accordance with Section 2.2(a). (d) The Issuers shall have received from each Purchaser its executed signature page to the Amended and Restated Investors Agreement. ARTICLE VI COVENANTS Section 6.1. LIMITATION ON DIVIDENDS ON AND REDEMPTION OF HOLDINGS CAPITAL STOCK. The Issuers make the following covenants for the benefit of the Holders of Senior Preferred Stock: (a) So long as any shares of Senior Preferred Stock are outstanding, no dividends (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Holdings Capital Stock) shall be declared or paid or set apart for payment or other distribution declared or made upon Holdings Capital Stock for any consideration by Holdings, directly or indirectly (except by conversion into or exchange for Holdings Capital Stock), unless in each case (i) the full cumulative dividends on all outstanding shares of the Senior Preferred Stock and any other Parity Securities shall (whether or not payable in cash) have been paid in cash or set apart for payment in cash for all past Dividend Periods with respect to Senior Preferred Stock and all past dividend periods with respect to such Parity Securities and (ii) (whether or not payable in cash) sufficient funds shall have been paid or set apart for the payment in cash of the dividend for the current -8- Dividend Period with respect to the Senior Preferred Stock and the current dividend period with respect to such Parity Securities. (b) So long as any shares of Senior Preferred Stock are outstanding, no Holdings Capital Stock shall be redeemed by Holdings or any of its subsidiaries, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by Holdings, directly or indirectly (except by conversion into or exchange for Holdings Capital Stock). (c) Sections 6.1(a) and (b) will not prohibit: (i) the repurchase, redemption or other acquisition or retirement for value of any Holdings Capital Stock held by any member of Holdings' or any of its subsidiaries' management pursuant to any management equity subscription agreement or stock option agreement, PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Holdings Capital Stock shall not exceed: (x) $4.0 million in any calendar year with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum, without giving effect to the following clause (y), of $7.0 million in any calendar year, plus (y) the aggregate cash proceeds received by Holdings during such calendar year from any reissuance of Holdings Capital Stock by Holdings to members of management of Holdings and its subsidiaries; and (ii) repurchases of Holdings Capital Stock deemed to occur upon exercise of stock options if such Holdings Capital Stock represent a portion of the exercise price of such options. Section 6.2. FINANCIAL INFORMATION. The Issuers agree to deliver to any Holder who is a DLJ Holder any financial information of this Issuers delivered to the lenders under the Credit Facility or any equityholder of the Company concurrently with such delivery to such other person. ARTICLE VII MISCELLANEOUS Section 7.1. NOTICES. All notices, demands and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereinafter specify for the purpose. Each such notice, demand or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified on the signature page hereof, or (ii) if given by overnight courier, addressed as aforesaid or by any other means, when delivered at the address specified in this Section. -9- Section 7.2. NO WAIVERS, AMENDMENTS. (a) No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to any party at law or in equity or otherwise. (b) Any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Issuers and the Holders of the majority of the outstanding Securities, EXCEPT amendments of Section 6.1, which require consent by the Issuers and Holders of a majority of the outstanding Senior Preferred Stock, and Section 6.2, which require consent by the Issuers and the Holders of a majority of the outstanding Warrants. (c) In determining whether the requisite Holders of Senior Preferred Stock and/or Warrants have concurred in any direction, consent, or waiver as provided in this Agreement or in the Senior Preferred Stock Certificate of Designations, Senior Preferred Stock which is owned by the Issuers, or, except for the DLJ Holders and their Affiliates (other than Holdings and its subsidiaries), by any Person controlling, controlled by, or under common control with any of the foregoing, shall be disregarded and deemed not to be outstanding for the purpose of any such determination; and PROVIDED, FURTHER, that no such amendment, supplement or waiver which affects the rights of the Holders and their Affiliates otherwise than solely in their capacities as Holders of Senior Preferred Stock shall be effective with respect to them without their prior written consent Section 7.3. INDEMNIFICATION. (a) The Issuers hereby indemnify, jointly and severally, each Purchaser and its affiliates, limited partners, general partners, directors, members, officers and employees against and agrees to hold each of them harmless from any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("DAMAGES") incurred or suffered by any such party arising out of any misrepresentation or breach of warranty, covenant or agreement made or to be performed by the Issuers pursuant to this Agreement. (b) Each Purchaser hereby indemnifies, severally and not jointly, each Issuer and its affiliates, limited partners, general partners, directors, members, officers and employees against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any such party arising out of any misrepresentation or breach of warranty, covenant or agreement made or to be performed by such Purchaser pursuant to this Agreement; PROVIDED that such Purchaser's maximum liability under this Section 7.3(b) shall not exceed the amount of the consideration paid by such Purchaser to the Issuer. (c) After the Issuance Date, Section 7.3 will provide the exclusive remedy for any misrepresentation, breach of warranty, covenant or other agreement or other claim arising out of this Agreement or the transactions contemplated hereby except to the extent any such claim is in respect of fraud. Section 7.4. EXPENSES. The Company agrees to pay all reasonable out-of-pocket costs, expenses and other payments of the Purchasers in connection with the purchase and sale of the -10- Securities as contemplated by this Agreement including without limitation (i) reasonable fees and disbursements of not more than one special counsel for all of the Purchasers incurred in connection with the preparation of this Agreement and (ii) all reasonable out-of-pocket expenses of the Purchasers, including reasonable fees and disbursements of such special counsel, in connection with any waiver or consent hereunder or any amendment hereof. Section 7.5. PAYMENT. The Company agrees that, so long as a Purchaser shall own any Senior Preferred Stock purchased by it from the Company hereunder, the Company will make payments to such Purchaser of all amounts due thereon by wire transfer by 1:00 P.M. (New York City time) on the date of payment to such account as is specified beneath the Purchasers' name on the signature page hereof or to such other account or such other similar manner as such Purchaser may designate to the Company in writing. Section 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the Issuers, the Purchasers and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto.. All provisions hereunder purporting to give rights to the Purchasers and its Affiliates, or to Holders are for the express benefit of such Persons. Section 7.7. BROKERS. The Company represents and warrants that it has not employed any broker, finder, financial advisor or investment banker who might be entitled to any brokerage, finder's or other fee or commission in connection with the sale of the Securities. Section 7.8. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO 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 PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 7.9. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. -11- Section 7.10. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 7.11. CONFIDENTIALITY. (a) The Company acknowledges and agrees that: (i) certain Affiliates of the Purchasers are a full service financial firm and as such may from time to time effect transactions for their own account or the account of customers, and hold positions in loans or options on loans of Persons that may be the subject of this arrangement; (ii) the Purchasers may employ the services of Donaldson, Lufkin & Jenrette Securities Corporation and its Affiliates in providing certain services hereunder and may, subject to clause (b) below, exchange with such entities information concerning the Issuers and such Affiliates will be entitled to the benefits afforded the Purchasers hereunder, and (iii) the Purchasers or their respective Affiliates may be providing financing or other services to Persons whose interests may conflict with the interests of the Issuers. (b) The Purchasers and each other Holder agree to keep confidential non-public information provided to the Purchasers and designated by either Issuer as "confidential"; PROVIDED that nothing herein shall prevent the Purchasers or such other Holder from disclosing any such information (i) to any Person that receives such information having been made aware of, and which agrees to maintain, the confidential nature thereof in order to facilitate or enable the Purchasers or such other Holder to syndicate, sell, transfer or assign any portion of its securities, (ii) to any Holder, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors who receive such information having been made aware of the confidential nature thereof and have agreed to comply with the confidentiality obligations hereunder, (iv) upon the request or demand of any governmental authority having jurisdiction over any Purchaser, (v) in response to any order of any court or other governmental authority or as may otherwise be required pursuant to any requirement of law, (vi) which has been publicly disclosed other than in breach of this Agreement or (vii) in connection with the exercise of any remedy hereunder. Section 7.12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in any document, certificate or statement delivered pursuant hereto or in connection herewith and the covenants made in Article Six shall survive the execution and delivery of this Agreement and the issuance of the Securities. Section 7.13. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. Section 7.14. INTEGRATION. This Agreement represents the agreement of the parties hereto with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Purchasers relative to the subject matter hereof not expressly set forth herein or in the other Financing Documents. -12- Section 7.15. HEADINGS. Section headings used herein and in the table of contents are for convenience only and are not to effect the construction of, or be taken into consideration in interpreting this Agreement and the other Financing Documents. [Signature Pages Follow] -13- S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. DECRANE AIRCRAFT HOLDINGS, INC. By: _________________________________ Name: Title: Address for Notices: 2361 Rosencrans Avenue Suite 180 El Segundo, CA 90245 Telecopier: 310-643-0746 Attention: R. Jack DeCrane DECRANE HOLDINGS CO. By: _________________________________ Name: Title: Address for Notices: 2361 Rosencrans Avenue Suite 180 El Segundo, CA 90245 Telecopier: 310-643-0746 Attention: R. Jack DeCrane S-2 Purchasers: DLJ INVESTMENT PARTNERS, L.P. By: DLJ INVESTMENT PARTNERS, INC., as managing general partner By: _________________________________ Name: Title: Address for Notices: 277 Park Avenue New York, NY 10172 Telecopier: 212-892-7272 Attention: Michelle Bergman Wiring Instructions: A/C # 275-011781 Attention: Ruchi Khurana S-3 DLJ INVESTMENT PARTNERS II, L.P. By: DLJ INVESTMENT PARTNERS II, INC., as managing general partner By: _________________________________ Name: Title: Address for Notices: 277 Park Avenue New York, NY 10172 Telecopier: 212-892-7272 Attention: Michelle Bergman Wiring Instructions: A/C # 275-011781 Attention: Ruchi Khurana S-4 DLJ INVESTMENT FUNDING II, INC. By: _________________________________ Name: Title: Address for Notices: 277 Park Avenue New York, NY 10172 Telecopier: 212-892-7272 Attention: Michelle Bergman Wiring Instructions: A/C # 275-011781 Attention: Ruchi Khurana S-5 DLJ ESC II, L.P. By: DLJ LBO PLANS MANAGEMENT CORPORATION, as managing general partner By: _________________________________ Name: Title: Address for Notices: 277 Park Avenue New York, NY 10172 Telecopier: 212-892-7272 Attention: Michelle Bergman Wiring Instructions: A/C # 275-011781 Attention: Ruchi Khurana SCHEDULE 2.1 COMMITMENTS TO PURCHASE
Aggregate Liquidation Number of Shares Preference of Senior of Common Stock Purchaser Preferred Stock Underlying Warrant - --------------------------------------------------- ---------------------------- --------------------- DLJ Investment Partners II, L.P.................. $14,206,400.00 79,191 DLJ Investment Partners, L.P..................... 6,314,000.00 35,196 DLJ Investment Funding II, Inc................... 1,343,000.00 7,491 DLJ ESC II, L.P.................................. 3,135,700.00 17,479 ------------- ------- Total............................. $25,000,000.00 139,357
SCHEDULE 3.3 PRO FORMA CAPITALIZATION HOLDINGS SHARES OUTSTANDING AS OF MAY 31, 2000
SALE OF SECURITIES HISTORICAL HEREUNDER PRO FORMA ---------- ----------- --------- PREFERRED STOCK 14% Holdings preferred stock 342,417 342,417 COMMON STOCKHOLDERS' EQUITY Common Stock 3,893,567 3,893,567 Additional paid-in capital 0 Notes receivable for shares sold 0 Accumulated deficit 0 Accumulated other comprehensive income (loss) Warrants to Purchase Common Stock Exercisable at $0.01 per share 150,000 139,357 289,357 Exercisable at $23.00 per share 155,000 155,000 Stock options - exercisable at $23.00 per share Management Option Plan Total authorized plan 356,257 356,257 Options granted 262,703 262,703 Options Granted to Global Technology Partners 44,612 44,612 ----------- ----------- Total common capitalization 4,645,239 4,784,596 ----------- ----------- Total capitalization 4,987,656 5,127,013 =========== =========== =========== ===========
THE COMPANY AS OF MAY 31, 2000 -------------------------- HISTORICAL SALE OF SECURITIES HEREUNDER PRO FORMA ---------- ---------------------------- --------- NO. OF DOLLARS NO. OF DOLLARS NO. OF DOLLARS SHARES (IN 000'S) SHARES (IN 000'S) SHARES (IN 000'S) ------- ---------- -------- ----------- -------- ---------- PREFERRED STOCK Senior Preferred Stock issued hereunder 250,000 25,000 250,000 25,000 COMMON STOCKHOLDERS' EQUITY Common Stock 100 0 100 0 Additional paid-in capital 124,749 0 124,749 Notes receivable for shares sold (2,525) 0 (2,525) Accumulated deficit (4,885) 0 (4,885) Accumulated other comprehensive income (loss) (2,244) 0 (2,244) -------- --------- -------- --------- Total common capitalization 100 115,095 100 115,095 -------- --------- -------- --------- Total capitalization 100 115,095 250,100 140,095 ======== ========= ========= ========= -2-
EX-10.2 11 ex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 AMENDED AND RESTATED INVESTORS' AGREEMENT dated as of June 30, 2000 by and among DECRANE HOLDINGS CO., DECRANE AIRCRAFT HOLDINGS, INC. DLJ MERCHANT BANKING PARTNERS II, L.P., DLJ MERCHANT BANKING PARTNERS II-A, L.P., DLJ OFFSHORE PARTNERS II, C.V., DLJ DIVERSIFIED PARTNERS, L.P. DLJ DIVERSIFIED PARTNERS -A, L.P., DLJ MILLENNIUM PARTNERS, L.P. DLJ MILLENNIUM PARTNERS-A, L.P. DLJMB FUNDING II, INC., UK INVESTMENT PLAN 1997 PARTNERS, DLJ EAB PARTNERS, L.P., DLJ FIRST ESC L.P., DLJ ESC II L.P. DLJ INVESTMENT PARTNERS, L.P. DLJ INVESTMENT PARTNERS II, L.P. DLJ INVESTMENT FUNDING II, INC. and certain other Stockholders named herein TABLE OF CONTENTS -------------
Page ---- ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2 CORPORATE GOVERNANCE SECTION 2.01. COMPOSITION OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.02. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.03. VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.04. MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.05. ACTION BY THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.06. BOARD OBSERVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.07. CONFLICTING CHARTER OR BYLAW PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 3 RESTRICTIONS ON TRANSFER SECTION 3.01. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.02. LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 3.03. PERMITTED TRANSFEREES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 3.04. RESTRICTIONS ON TRANSFERS BY MANAGEMENT STOCKHOLDERS . . . . . . . . . . . . . . . . . . 15 SECTION 3.05. RESTRICTIONS ON TRANSFERS BY THE INVESTORS AND THE DLJIP ENTITIES. . . . . . . . . . . . 16 ARTICLE 4 TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS SECTION 4.01. RIGHTS TO PARTICIPATE IN TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 4.02. RIGHT TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS . . . . . . . . . . . . . . . . . . . 18 SECTION 4.03. CERTAIN RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 5 REGISTRATION RIGHTS SECTION 5.01. DEMAND REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 5.02. INCIDENTAL REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.03. HOLDBACK AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 5.04. REGISTRATION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 5.05. INDEMNIFICATION BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 5.06. INDEMNIFICATION BY PARTICIPATING STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . 29 SECTION 5.07. CONDUCT OF INDEMNIFICATION PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 5.08. CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 5.09. PARTICIPATION IN PUBLIC OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5.10. OTHER INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5.11. COOPERATION BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 6 MISCELLANEOUS SECTION 6.01. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 6.02. BINDING EFFECT; BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 6.03. EXCLUSIVE FINANCIAL AND INVESTMENT BANKING ADVISOR . . . . . . . . . . . . . . . . . . . 33 SECTION 6.04. ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.05. AMENDMENT; WAIVER; TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.06. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.07. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.08. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.09. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.10. SPECIFIC ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.11. CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ii AMENDED AND RESTATED INVESTORS' AGREEMENT AMENDED AND RESTATED INVESTORS' AGREEMENT dated as of June 30, 2000 (the "AGREEMENT") among (i) DeCrane Holdings Co., a Delaware corporation (the "COMPANY") and DeCrane Aircraft Holdings, Inc., a Delaware corporation and subsidiary of the Company ("OPCO"); (ii) DLJ Merchant Banking Partners II, L.P., a Delaware limited partnership, DLJ Offshore Partners II, C.V., a Netherlands Antilles limited partnership, DLJ Merchant Banking Partners II-A, L.P., a Delaware limited partnership, DLJ Diversified Partners, L.P., a Delaware limited partnership, DLJ Diversified Partners-A, L.P., a Delaware limited partnership, DLJ EAB Partners, L.P., a Delaware limited partnership, DLJ Millennium Partners, L.P., a Delaware limited partnership, DLJ Millennium Partners-A, L.P., a Delaware limited partnership, DLJMB Funding II, Inc., a Delaware corporation, UK Investment Plan 1997 Partners, a Delaware partnership, DLJ First ESC L.P., a Delaware limited partnership and DLJ ESC II L.P., a Delaware limited partnership (other than in its capacity as a DLJIP Entity), (each of the foregoing, a "DLJ ENTITY", and collectively, the "DLJ ENTITIES"); (iii) DLJ Investment Partners, L.P., a Delaware limited partnership, DLJ Investment Partners II, L.P., a Delaware limited partnership, DLJ Investment Funding II, Inc., a Delaware corporation, and DLJ ESC II, L.P., a Delaware limited partnership (solely in its capacity as a holder of Senior Preferred Stock, DLJIP Warrants and any Company Securities issued with respect thereto), (each of the foregoing, a "DLJIP ENTITY", and collectively, the "DLJIP ENTITIES"); and (iv) certain other Stockholders named herein. W I T N E S S E T H WHEREAS, the Company, the DLJ Entities and certain other Stockholders parties thereto have heretofore entered into an Amended and Restated Investors' Agreement dated as of October 2, 1998 (the "ORIGINAL AGREEMENT"); WHEREAS, pursuant to the Securities Purchase Agreement (the "PURCHASE AGREEMENT") dated as of the date hereof by and among the Company, Opco and the DLJIP Entities, the DLJIP Entities are acquiring (i) shares of 16% Senior Redeemable Exchangeable Preferred Stock due 2009 of Opco (the "SENIOR PREFERRED STOCK") and (ii) warrants to purchase common stock of the Company; WHEREAS, the parties hereto desire to amend and restate the Original Agreement to govern certain of their rights, duties and obligations after consummation of the transactions contemplated by the Purchase Agreement; NOW, THEREFORE, in consideration of the covenants and agreements contained herein and in the Purchase Agreement, the parties hereto agree as follows: ARTICLE 1 Definitions Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "ADVERSE PERSON" means any Person whom the Board determines is a competitor or a potential competitor of the Company or any of its Subsidiaries or to whom the Board determines a transfer of Shares would be inadvisable. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; PROVIDED that no stockholder of the Company shall be deemed an Affiliate of any other stockholder of the Company solely by reason of any investment in the Company. For the purpose of this definition, the term "CONTROL" (including with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AFFILIATED EMPLOYEE BENEFIT TRUST" means any trust that is a successor to the assets held by a trust established under an employee benefit plan subject to ERISA or any other trust established directly or indirectly under such plan or any other such plan having the same sponsor. "AGGREGATE OWNERSHIP" means, with respect to any Stockholder or group of Stockholders, and with respect to any class of Company Securities, the total number or amount of such class of Company Securities "beneficially owned" (as such term is defined in Rule 13d-3 under the Exchange Act) (without duplication) by such Stockholder or group of Stockholders as of the date of such calculation (but adjusted in accordance with the proviso below), calculated on a Fully Diluted basis and taking into account any stock dividend, stock split or reverse stock split; 2 PROVIDED that such number or amount of such class of Company Securities shall be increased (without duplication) with respect to any Stockholder, by any stock appreciation rights, options, warrants or other rights to purchase or subscribe for Common Shares of such Other Stockholder as and when such stock appreciation rights, options, warrants or other rights have vested. "BOARD" means the board of directors of the Company. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "BYLAWS" means the Bylaws of the Company, as amended from time to time. "CHANGE OF CONTROL" means: (a) any "person" or "group of persons" (within the meaning of Section 13 or 14 of the Exchange Act), other than the DLJ Entities and/or their respective Permitted Transferees, acquires, directly or indirectly, by virtue of the consummation of any purchase, merger or other combination, beneficial ownership (within the meaning of Section 13(d)(3) of the Exchange Act) of securities of the Company representing more than 51% of the combined voting power of the Company's then outstanding voting securities with respect to matters submitted to a vote of the stockholders generally; or (b) a sale or transfer by the Company or any of its Subsidiaries of substantially all of the consolidated assets of the Company and its Subsidiaries to an entity which is not an Affiliate of the Company prior to such sale or transfer. "CHARTER" means the Certificate of Incorporation of the Company, as amended from time to time. "CLOSING DATE" means August 28, 1998. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMON STOCK" means the common stock, par value $0.01 per share, of the Company and any stock into which such Common Stock may thereafter be converted or changed, and "COMMON SHARES" means shares of Common Stock. 3 "COMPANY SECURITIES" means the Common Stock and securities convertible into or exchangeable for Common Stock, the Preferred Stock and options, warrants (including the Warrants) or other rights to acquire Common Stock, Preferred Stock or any other equity security issued by the Company. "DLJIP WARRANTS" means the warrants issued by the Company to the DLJIP Entities pursuant to the Purchase Agreement for the purchase of an aggregate of 139,357 Common Shares (subject to adjustment as provided for therein). "DLJ WARRANTS" means the warrants issued by the Company to the DLJ Entities for the purchase of an aggregate of 155,000 Common Shares (subject to adjustment as provided for therein). "DRAG-ALONG PORTION" means, with respect to any Other Stockholder and any class of Company Securities, the number of such class of Company Securities beneficially owned by such Other Stockholder on a Fully Diluted basis multiplied by a fraction, the numerator of which is the number of such class of Company Securities proposed to be sold by the DLJ Entities on behalf of the DLJ Entities and the Other Stockholders and the denominator of which is the total number of such class of Company Securities beneficially owned by the Stockholders on a Fully Diluted basis. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FULLY DILUTED" means, with respect to Common Stock and without duplication, all outstanding Common Shares and all Common Shares issuable in respect of securities convertible into or exchangeable for Common Shares, stock appreciation rights, options, warrants (including the Warrants) and other rights to purchase or subscribe for Common Shares or securities convertible into or exchangeable for Common Shares; PROVIDED that, to the extent any of the foregoing stock appreciation rights, options, warrants or other rights to purchase or subscribe for Common Shares are subject to vesting, the Common Shares subject to vesting shall be included in the definition of "FULLY DILUTED" only upon and to the extent of such vesting. "INITIAL OWNERSHIP" means, with respect to any Stockholder and any class of Company Securities, the number of shares or units of such class of Company Securities beneficially owned (and (without duplication) which such Persons have the right to acquire from any Person) as of the date such Person became a party to 4 the Original Agreement or this Agreement, as the case may be, taking into account any stock split, stock dividend, reverse stock split or similar event. "INITIAL PUBLIC OFFERING" means the initial sale after the date hereof of Registrable Securities pursuant to an effective registration statement under the Securities Act (other than a registration statement on Form S-8 or any successor form). "INVESTORS" means each investor in the Company's equity (other than the DLJ Entities, the DLJIP Entities, the Management Stockholders and their respective Permitted Transferees), who became or becomes a Stockholder after the date of the Original Agreement for so long as such investor shall beneficially own any Company Securities. "MANAGEMENT STOCKHOLDERS" means each of the members of management of the Company who became or becomes a Stockholder after the date of the Original Agreement for so long as such member of management shall beneficially own any Company Securities. "OTHER STOCKHOLDERS" means all Stockholders and their respective Permitted Transferees, other than the DLJ Entities and their respective Permitted Transferees. "PERMITTED TRANSFEREE" means: (i) in the case of any DLJ Entity (A) any other DLJ Entity, (B) any general or limited partner of any DLJ Entity (a "DLJ PARTNER"), and any corporation, partnership, Affiliated Employee Benefit Trust or other entity that is an Affiliate of any DLJ Partner (collectively, the "DLJ AFFILIATES"), (C) any managing director, director, general partner, limited partner, officer or employee of any DLJ Entity or of any DLJ Affiliate, or the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of the foregoing persons referred to in this clause (C) (collectively, the "DLJ ASSOCIATES"), (D) a trust, the beneficiaries of which, or a corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, include only DLJ Entities, DLJ Affiliates, DLJ Associates, their spouses or their lineal descendants or (E) a voting trustee for one or more DLJ Entities, DLJ Affiliates or DLJ Associates under the terms of a voting trust designed to conform with the requirements of the Insurance Law of the State of New York; 5 (ii) in the case of any Other Stockholder (other than the DLJIP Entities) (A) any Other Stockholder, (B) a Person to whom Shares are transferred from such Other Stockholder (1) by will or the laws of descent and distribution or (2) by gift without consideration of any kind; PROVIDED that, in the case of clause (2), such transferee is the issue or spouse of such Other Stockholder or (C) a trust that is for the exclusive benefit of such Other Stockholder or its Permitted Transferees under (B) above; and (iii) in the case of any DLJIP Entity, (A) any other DLJIP Entity, (B) any general or limited partner of any DLJIP Entity (a "DLJIP PARTNER"), and any corporation, partnership, Affiliated Employee Benefit Trust or other entity that is an Affiliate of any DLJIP Partner (collectively, the "DLJIP AFFILIATES"), (C) any managing director, director, general partner, limited partner, officer or employee of any DLJIP Entity or of any DLJIP Affiliate, or the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of the foregoing persons referred to in this clause (C) (collectively, the "DLJIP ASSOCIATES"), (D) a trust, the beneficiaries of which, or a corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, include only DLJIP Entities, DLJIP Affiliates, DLJIP Associates, their spouses or their lineal descendants or (E) a voting trustee for one or more DLJIP Entities, DLJIP Affiliates or DLJIP Associates under the terms of a voting trust designed to conform with the requirements of the Insurance Law of the State of New York. "PERSON" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PREFERRED STOCK" means the 14% Senior Redeemable Exchangeable Preferred Stock, par value $0.01 per share, of the Company, and "PREFERRED SHARES" means shares of Preferred Stock. "PRO RATA PORTION" means the number of Common Shares a Stockholder holds multiplied by a fraction, the numerator of which is the number of Common Shares to be sold by the DLJ Entities and their Permitted Transferees in a Public Offering and the denominator of which is the total number of Common Shares, on a Fully Diluted basis, held in the aggregate by the DLJ Entities and their Permitted Transferees prior to such Public Offering. "PUBLIC OFFERING" means any primary or secondary public offering of Registrable Securities of the Company pursuant to an effective registration statement under the Securities Act other than pursuant to a registration statement 6 filed in connection with a transaction of the type described in Rule 145 of the Securities Act or for the purpose of issuing securities pursuant to an employee benefit plan. "REGISTRABLE SECURITIES" means at any time, with respect to any Stockholder or its Permitted Transferees, any Shares or Warrants and any securities issued or issuable in respect of such Shares or Warrants by way of conversion, exchange, stock dividend, split or combination, recapitalization, merger, consolidation or other reorganization or otherwise until (i) a registration statement covering such Shares or Warrants has been declared effective by the SEC and such Shares or Warrants have been disposed of pursuant to such effective registration statement, (ii) such Shares or Warrants are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met or (iii) such Shares or Warrants are otherwise transferred, the Company has delivered a new certificate or other evidence of ownership for such Shares or Warrants not bearing the legend required pursuant to this Agreement and such Shares or Warrants may be resold without subsequent registration under the Securities Act. "REGISTRATION EXPENSES" means (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities registered), (iii) printing expenses, (iv) internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letter requested pursuant to Section 5.04(h) hereof), (vi) the reasonable fees and expenses of any special experts retained by the Company in connection with the applicable registration, (vii) reasonable fees and expenses of up to one counsel for the Stockholders participating in the offering selected (A) by the DLJ Entities, in the case of any offering in which such entities participate, or (B) in any other case, by the Other Stockholders holding the majority of the Shares or Warrants to be sold for the account of all Other Stockholders in the offering, (viii) fees and expenses in connection with any review of underwriting arrangements by the National Association of Securities Dealers, Inc. (the "NASD"), including fees and expenses of any "QUALIFIED INDEPENDENT UNDERWRITER", and (ix) fees and disbursements of underwriters customarily paid by issuers or sellers of securities; but shall not include any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities, or any out-of-pocket expenses (except as set forth in clause (vii) above) of the Stockholders (or the agents who manage their accounts) or any fees and expenses of underwriter's counsel. 7 "REQUISITE DLJIP ENTITIES" means holders of 50% of the Common Shares (and any securities issued or issuable in respect of such Common Shares by way of conversion, exchange, stock dividend, split or combination, recapitalization, merger, consolidation or other reorganization or otherwise) issued or issuable upon exercise of the DLJIP Warrants. "RESTRICTION TERMINATION DATE" means the earlier to occur of (a) the second anniversary of the Initial Public Offering and (b) the fifth anniversary of the Closing Date. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means the Common Shares and the Preferred Shares. "SHELF REGISTRATION" means a shelf registration statement filed under Rule 415 under the Securities Act. "STOCKHOLDER" means each Person (other than the Company) who shall be a party to or bound by this Agreement, whether in connection with the execution and delivery hereof as of the date hereof, pursuant to Section 6.04 or otherwise, so long as such Person shall beneficially own any Company Securities. "SUBSIDIARY" means, with respect to any Person, any entity of which ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "TAG-ALONG PORTION" means with respect to any Tagging Person or the Selling Person, as the case may be: (i) where the Selling Person is selling Common Shares, the number of Common Shares beneficially owned by such Tagging Person or the Selling Person, as the case may be, on a Fully Diluted Basis multiplied by a fraction, the numerator of which is the number of Common Shares proposed to be sold in the Tag-Along Sale pursuant to Section 4.01 and the denominator of which is the aggregate number of Common Shares beneficially owned by all Stockholders on a Fully Diluted basis, (ii) where the Selling Person is selling Preferred Shares, the number of Preferred Shares beneficially owned by such Tagging Person or the Selling Person, as the case may be, multiplied by a fraction, 8 numerator of which is the number of Preferred Shares proposed to be sold in the Tag-Along Sale pursuant to Section 4.01 and the denominator of which is the aggregate number of Preferred Shares beneficially owned by all Stockholders, and (iii) where the Selling Person is selling Warrants, the number of Common Shares beneficially owned (or, without duplication, acquirable under the Warrants) by such Tagging Person or the Selling Person, as the case may be, on a Fully Diluted Basis multiplied by a fraction, the numerator of which is the number of Common Shares for which the Warrants proposed to be sold in the Tag-Along Sale pursuant to Section 4.01 are exercisable and the denominator of which is the aggregate number of Common Shares beneficially owned by the Stockholders on a Fully Diluted Basis; PROVIDED that, where a Tag-Along Right includes the right to sell Common Stock, any holder of Warrants may, in lieu of exercising such Warrants, transfer such Warrants for some or all of that number of Common Shares as would otherwise have constituted its Tag-Along Portion, in which event the price to be received with respect to each such Warrant shall be the price per Common Share applicable to the Tag-Along Offer, less the then applicable exercise price of the Warrants owned by such holder. "THIRD PARTY" means a prospective purchaser of Company Securities in an arm's-length transaction from a Stockholder where such purchaser is not a Permitted Transferee of such Stockholder. "UNDERWRITTEN PUBLIC OFFERING" means a firmly underwritten Public Offering. "WARRANTS" means the DLJ Warrants and the DLJIP Warrants. (b) The term "DLJ ENTITIES", to the extent such entities shall have transferred any of their Shares to "Permitted Transferees", shall mean the DLJ Entities and the Permitted Transferees of the DLJ Entities, taken together, and any right or action that may be taken at the election of the DLJ Entities may be taken at the election of the DLJ Entities and such Permitted Transferees. (c) The term "OTHER STOCKHOLDERS", to the extent such stockholders shall have transferred any of their Company Securities to "Permitted Transferees", shall mean the Other Stockholders and the Permitted Transferees of the Other Stockholders, taken together, and any right or action that may be taken at the election of the Other Stockholders may be taken at the election of the Other Stockholders and such Permitted Transferees. 9 (d) The term "DLJIP ENTITIES", to the extent such entities shall have transferred any of their Company Securities to "Permitted Transferees", shall mean the DLJIP Entities and the Permitted Transferees of the DLJIP Entities, taken together, and any right or action that may be taken at the election of the DLJIP Entities may be taken at the election of the DLJIP Entities and such Permitted Transferees. (e) Each of the following terms is defined in the Section set forth opposite such term:
TERM SECTION ---- ------- Agreement recitals Applicable Holdback Period 5.03 Black Out Notice 5.04 Black Out Period 5.01 Company recitals Demand Registration 5.01(a) DLJ Entities recitals DLJIP Entities recitals DLJMB 2.01 DLJSC 6.03 Drag-Along Rights 4.02(a) Holders 5.01(a)(ii) Incidental Registration 5.02(a) Indemnified Party 5.07 Indemnifying Party 5.07 Independent Director 2.01(a) Inspectors 5.04(g) Maximum Offering Size 5.01(e) Nominee 2.03(a) Opco recitals Original Agreement recitals Public Offering Limitation 3.04(a) Purchase Agreement recitals Records 5.04(g) Section 4.01 Response 4.01(a) Notice Section 4.02 Notice 4.02(a) Section 4.02 Notice Period 4.02(a) Section 4.02 Sale 4.02(a) Section 4.02 Sale Price 4.02(a) Selling Person 4.01(a) Selling Stockholder 5.01(a) Senior Preferred Stock recitals Tag-Along Notice 4.01(a)
10 TERM SECTION ---- ------- Tag-Along Notice Period 4.01(a) Tag-Along Offer 4.01(a) Tag-Along Right 4.01(a) Tag-Along Sale 4.01(a) Tagging Person 4.01(a) transfer 3.01(a)
ARTICLE 2 CORPORATE GOVERNANCE Section 2.01. COMPOSITION OF THE BOARD. (a) The Board shall consist initially of six directors, all of whom shall be designated by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and one of whom shall not be either an "Affiliate" or an "Associate" (as such terms are used within the meaning of Rule 12b-2 under the Exchange Act) of any of the DLJ Entities (the "INDEPENDENT DIRECTOR"). (b) Each Stockholder entitled to vote for the election of directors to the Board agrees that it will vote its Common Shares or execute written consents, as the case may be, and take all other necessary action (including causing the Company to call a special meeting of stockholders) in order to ensure that the composition of the Board is as set forth in this Section 2.01. Section 2.02. REMOVAL. Each Stockholder agrees that if, at any time, it is then entitled to vote for the removal of directors of the Company, it will not vote any of its Common Shares in favor of the removal of any director who shall have been designated or nominated pursuant to Section 2.01 unless such removal shall be for cause or the Persons entitled to designate or nominate such director shall have consented to such removal in writing. Section 2.03. VACANCIES. If, as a result of death, disability, retirement, resignation, removal (with or without cause) or otherwise, there shall exist or occur any vacancy of the Board: (a) the Person or Persons entitled under Section 2.01 to designate or nominate such director whose death, disability, retirement, resignation or removal resulted in such vacancy may designate another individual (the "NOMINEE") to fill such capacity and serve as a director of the Company; and 11 (b) each Stockholder then entitled to vote for the election of the Nominee as a director of the Company agrees that it will vote its Common Shares, or execute a written consent, as the case may be, in order to ensure that the Nominee is elected to the Board. Section 2.04. MEETINGS. The Board shall hold a regularly scheduled meeting at least once every fiscal quarter. Section 2.05. ACTION BY THE BOARD. (a) A quorum of the Board shall consist of three directors. All actions of the Board shall require the affirmative vote of at least a majority of the directors present at a duly convened meeting of the Board at which a quorum is present or the unanimous written consent of the Board; PROVIDED that, in the event there is a vacancy on the Board and an individual has been nominated to fill such vacancy, the first order of business shall be to fill such vacancy. (b) The Board may create executive, compensation and audit committees, as well as such other committees as it may determine. Section 2.06. BOARD OBSERVER. (a) So long as the DLJIP Entities shall beneficially own in aggregate at least 51% of the number of shares of the Senior Preferred Stock beneficially owned by them as of the date hereof, (i) the Company shall give DLJ Investment Partners II, L.P. written notice of each meeting of the Board and each committee thereof at the same time and in the same manner as notice is given to the directors, (ii) the Company will permit one representative of the DLJIP Entities (a "BOARD REPRESENTATIVE") to attend and fully participate in all meetings of the Board and all committees thereof and (iii) the Company shall consult with the Board Representative with respect to any fundamental change in the nature of the Company's business; PROVIDED that the Board Representative shall have no right to vote on any resolutions or other matters upon which members of the Board may vote; and PROVIDED FURTHER that in the case of telephonic meetings conducted in accordance with the Company's bylaws and applicable law, the Board Representative shall be given the opportunity to listen and fully participate in such telephonic meeting. The Board Representative shall also be provided with all written materials and other information (including, without limitation, copies of minutes of meetings) given to directors in connection with such meetings at the same time such materials and information are given to the directors. If the Company proposes to take any action by written consent in lieu of a meeting of the Board or any committee thereof, the Company shall give written notice thereof to the Board Representative promptly following the effective date of such consent describing in reasonable detail the nature and substance of such action. The Company shall pay the reasonable out-of-pocket 12 expenses of the Board Representative incurred in connection with attending such board and committee meetings. (b) So long as the DLJIP Entities shall beneficially own in aggregate at least 51% of the number of shares of the Senior Preferred Stock beneficially owned by them as of the date hereof, at any reasonable time during normal business hours and from time to time, but not more frequently than once in any six-month period, upon five (5) days written notice, the Company will permit any one or more of the DLJIP Entities to examine the books and records of the Company; PROVIDED that the DLJIP Entities shall use all reasonable efforts to ensure that any such examination or visit results in a minimum of disruption to the operations of the Company. (c) Prior to receiving any written information or materials referred to in Section 2.06(a), attending any meetings of the Board or any of its committees, or examining any books or records pursuant to Section 2.06(b), each of the DLJIP Entities shall be required to execute a confidentiality agreement in form and substance satisfactory to the Company and the DLJIP Entities and shall agree to use any such materials or information only for the purpose of evaluating and monitoring the investment of the DLJIP Entities in the Company and Opco and otherwise in compliance with applicable law. (c) Notwithstanding anything in this Agreement to the contrary, the DLJIP Entities may not assign their rights under this Section 2.06 to any other Person, including any Permitted Transferee. Section 2.07. CONFLICTING CHARTER OR BYLAW PROVISIONS. Each Stockholder shall vote its Common Shares or execute written consents, as the case may be, and take all other actions necessary, to ensure that the Company's Charter and Bylaws facilitate and do not at any time conflict with any provision of this Agreement. ARTICLE 3 RESTRICTIONS ON TRANSFER Section 3.01. GENERAL. (a) Each Stockholder understands and agrees that the Company Securities purchased pursuant to the applicable subscription agreement have not been registered under the Securities Act and are restricted securities. Each Stockholder agrees that it will not, directly or indirectly, sell, assign, transfer, grant a participation in, pledge or otherwise dispose of ("TRANSFER") any Company Securities (or solicit any offers to buy or otherwise 13 acquire, or take a pledge of any Company Securities) except in compliance with the Securities Act and the terms and conditions of this Agreement. Subject to the Securities Act and Section 4.01, Company Securities may be freely transferred by any DLJ Entities. (b) Any attempt to transfer any Company Securities not in compliance with this Agreement shall be null and void and the Company shall not, and shall cause any transfer agent not to, give any effect in the Company's stock records to such attempted transfer. Section 3.02. LEGENDS. In addition to any other legend that may be required, each certificate for Shares or Warrants that is issued to any Stockholder shall bear a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE AMENDED AND RESTATED INVESTORS' AGREEMENT DATED AS OF JUNE 30, 2000, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM DECRANE HOLDINGS CO. OR ANY SUCCESSOR THERETO. If any Company Securities shall cease to be Registrable Securities under clause (i) or clause (ii) of the definition thereof, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate evidencing such securities without the first sentence of the legend required by this Section endorsed thereon. If any Company Securities shall cease to be subject to any and all restrictions on transfer set forth in this Agreement, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate evidencing such securities without the second sentence of the legend required by this Section endorsed thereon. Section 3.03. PERMITTED TRANSFEREES. Notwithstanding anything in this Agreement to the contrary, any Stockholder may at any time transfer any or all of its Company Securities to one or more of its Permitted Transferees without the consent of the Board or any other Stockholder or group of Stockholders and without compliance with Sections 3.04, 3.05 and 4.01 so long as (a) such Permitted Transferee shall have agreed in writing to be bound by the terms of this Agreement and (b) the transfer to such Permitted Transferee is not in violation of applicable federal or state securities laws. 14 Section 3.04. RESTRICTIONS ON TRANSFERS BY MANAGEMENT STOCKHOLDERS. (a) Except as provided in Section 3.03, each Management Stockholder and each Permitted Transferee of such Management Stockholder may transfer its Company Securities only as follows: (i) in a transfer made in compliance with Section 4.01 or 4.02, or as permitted or required by any employment contract between the Company or any Subsidiary and an employee; (ii) subject to the Public Offering Limitations, in a Public Offering in connection with the exercise of its rights under Section 5.02 hereof; (iii) in a transfer made at the conclusion of the Applicable Holdback Period (as defined in Section 5.03) following a Public Offering, in compliance with Rule 144 promulgated under the Securities Act; PROVIDED, HOWEVER, that until the Restriction Termination Date, the Aggregate Ownership of such Management Stockholder as a result of such transfer shall be equal to or exceed the greater of (x) 50% of such Management Stockholder's Initial Ownership and (y) the percentage of such Management Stockholder's Initial Ownership that is equal to the Aggregate Ownership of the DLJ Entities as a percentage of the DLJ Entities' Initial Ownership; or (iv) following the Restriction Termination Date, to any Third Party other than an Adverse Person for consideration consisting solely of cash; PROVIDED, HOWEVER, that the number of Common Shares transferred by such Management Stockholder pursuant to this Section 3.04(a)(iv) in any twelve month period shall not exceed 20% of such Management Stockholder's Aggregate Ownership at the beginning of such twelve month period. For purposes of this Agreement, "PUBLIC OFFERING LIMITATIONS" means (A) no Management Stockholder shall be permitted to exercise its rights under Section 5.02 hereof (x) with respect to the Initial Public Offering and (y) until such time as the Aggregate Ownership of the DLJ Entities shall be less than 50% of their aggregate Initial Ownership and (B) in each Public Offering following the Initial Public Offering, such Management Stockholder shall be entitled to transfer a number of Shares not exceeding such Management Stockholder's Pro Rata Portion of such Management Stockholder's Shares. (b) The provisions of Section 3.04(a) shall terminate upon the earliest to occur of (i) the tenth anniversary of the Closing Date and (ii) a Change of Control. Notwithstanding the foregoing sentence, the provisions of Section 3.04(a) shall 15 not terminate with respect to any Management Stockholder's Shares which shall have been pledged to the Company as security in connection with any indebtedness for borrowed money owed by such Management Stockholder to the Company unless the proceeds from the sale of such Shares are applied to repay such indebtedness in full. Section 3.05. RESTRICTIONS ON TRANSFERS BY THE INVESTORS AND THE DLJIP ENTITIES. (a) Except as provided in Section 3.03, each of the Investors and its Permitted Transferees may transfer its Company Securities only as follows: (i) in a transfer made in compliance with Section 4.01 or 4.02; or (ii) in a Public Offering in connection with the exercise of its rights under Article 5 hereof. (b) Each DLJIP Entity and its Permitted Transferees may transfer its Company Securities freely, subject only to compliance with Section 4.02. (c) The provisions of Sections 3.05(a) and (b) shall terminate upon the earlier to occur of (i) the tenth anniversary of the Closing Date and (ii) a Change of Control. ARTICLE 4 TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS Section 4.01. RIGHTS TO PARTICIPATE IN TRANSFER. (a) If the DLJ Entities (the "SELLING PERSON") propose to transfer (other than transfers of Common Shares (i) in a Public Offering or (ii) to any Permitted Transferee of any of the DLJ Entities) a number of Company Securities equal to or exceeding 20% of the Aggregate Ownership of the DLJ Entities in a single transaction or in a series of related transactions on the date of the proposed sale (a "TAG-ALONG SALE"), the Other Stockholders may, at their option, elect to exercise their rights under this Section 4.01 (each such Stockholder, a "TAGGING PERSON"). In the event of such a proposed transfer, the Selling Person shall provide each Other Stockholder written notice of the terms and conditions of such proposed transfer ("TAG-ALONG NOTICE") and offer each Tagging Person the opportunity to participate in such sale. The Tag-Along Notice shall identify the number and type of Company Securities subject to the offer ("TAG-ALONG OFFER"), the cash price at which the transfer is proposed to be made, and all other material terms and conditions of the Tag-Along Offer. Each Tagging Person shall have the right (a "TAG-ALONG 16 RIGHT"), exercisable by written notice ("SECTION 4.01 RESPONSE NOTICE") given to the Selling Person within 10 Business Days of the date of receipt of the Tag-Along Notice by such Tagging Person (the "TAG-ALONG NOTICE PERIOD"), to request that the Selling Person include in the proposed transfer the number and type of Company Securities held by such Tagging Person as is specified in such notice; PROVIDED that if the aggregate number of Company Securities proposed to be sold by the Selling Person and all Tagging Persons in such transaction exceeds the number of Company Securities which can be sold on the terms and conditions set forth in the Tag-Along Notice, then only the Tag-Along Portion of the Company Securities of each Tagging Person shall be sold pursuant to the Tag-Along Offer and the Selling Person shall sell its Tag-Along Portion of the Company Securities and such additional Company Securities as permitted by Section 4.01(d). Each Tagging Person shall deliver to the Selling Person, together with its Section 4.01 Response Notice, the certificate or certificates representing the Company Securities of such Tagging Person to be included in the transfer, together with a limited power-of-attorney authorizing the Selling Person to transfer such Company Securities on the terms set forth in the Tag-Along Notice. Delivery of such certificate or certificates representing the Company Securities to be transferred and the limited power-of-attorney authorizing the Selling Person to transfer such Company Securities shall constitute an irrevocable acceptance of the Tag-Along Offer by such Tagging Persons. If, at the end of a 120 day period after such delivery, the Selling Person has not completed the transfer of all of such Company Securities on substantially the same terms and conditions set forth in the Tag-Along Notice, the Selling Person shall return to each Tagging Person the limited power-of-attorney (and all copies thereof) together with certificates representing the unsold Company Securities which such Tagging Person delivered for transfer pursuant to this Section 4.01. (b) Concurrently with the consummation of the Tag-Along Sale, the Selling Person shall notify the Tagging Persons thereof, shall remit to the Tagging Persons the total consideration (by bank or certified check) for the Company Securities of the Tagging Persons transferred pursuant thereto, and shall, promptly after the consummation of such Tag-Along Sale, furnish such other evidence of the completion and time of completion of such transfer and the terms thereof as may be reasonably requested by the Tagging Persons. (c) If at the termination of the Tag-Along Notice Period any Tagging Person shall not have elected to participate in the Tag-Along Sale, such Tagging Person will be deemed to have waived its rights under Section 4.01(a) with respect to the transfer of its Company Securities pursuant to such Tag-Along Sale. (d) If any Tagging Person declines to exercise its Tag-Along Rights or elects to exercise its Tag-Along Rights with respect to less than such Tagging Person's Tag-Along Portion, the DLJ Entities shall be entitled to transfer, 17 pursuant to the Tag-Along Offer, a number and type of Company Securities held by the DLJ Entities equal to the number and type of Company Securities constituting the portion of such Tagging Person's Tag-Along Portion with respect to which Tag-Along Rights were not exercised. (e) The DLJ Entities and any Tagging Person who exercises the Tag-Along Rights pursuant to this Section 4.01 may sell the Company Securities subject to the Tag-Along Offer on the terms and conditions set forth in the Tag-Along Notice (PROVIDED, HOWEVER, that the cash price payable in any such sale may exceed the cash price specified in the Tag-Along Notice by up to 10%) within 120 days of the date on which Tag-Along Rights shall have been waived, exercised or expire. Section 4.02. RIGHT TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS. (a) If (i) the DLJ Entities propose to transfer not less than 50% of their Initial Ownership of any class of Company Securities to a Third Party in a bona fide sale or (ii) the DLJ Entities propose a transfer in which the Company Securities to be transferred by the DLJ Entities and their Permitted Transferees constitute more than 50% of such class of outstanding Company Securities (a "SECTION 4.02 SALE"), the DLJ Entities may at their option require all Other Stockholders to sell the Drag-Along Portion of their Company Securities ("DRAG-ALONG RIGHTS"). DLJMB shall provide written notice of such Section 4.02 Sale to the Other Stockholders (a "SECTION 4.02 NOTICE") not later than 15 days prior to the proposed Section 4.02 Sale. The Section 4.02 Notice shall identify the proposed transferee for the Section 4.02 Sale, the number and type of Company Securities proposed to be transferred pursuant to the Section 4.02 Sale, the proposed consideration for the Company Securities (the "SECTION 4.02 SALE PRICE") and all other material terms and conditions of the proposed Section 4.02 Sale. The number of Company Securities to be sold by each Other Stockholder will be the Drag-Along Portion of the Company Securities that such Other Stockholder owns. Subject to Sections 4.02 and 4.03, each Other Stockholder shall be required to participate in the Section 4.02 Sale on the terms and conditions set forth in the Section 4.02 Notice and to tender the Drag-Along Portion of its Company Securities as set forth below. The price payable in such transfer shall be the Section 4.02 Sale Price. Not later than the 10th day following the date of the Section 4.02 Notice (the "SECTION 4.02 NOTICE PERIOD"), each of the Other Stockholders shall deliver to a representative of DLJMB designated in the Section 4.02 Notice certificates representing the Drag Along Portion of such Other Stockholder's Company Securities, duly endorsed, together with all other documents required to be executed in connection with such Section 4.02 Sale. If any Other Stockholder should fail to deliver such certificates to DLJMB, the Company shall cause the books and records of the Company to show that the Drag-Along Portion of such Other Stockholder's Company Securities are bound 18 by the provisions of this Section 4.02 and Section 4.03 and that such Company Securities shall be transferred to the purchaser of the Company Securities subject to the Section 4.02 Sale immediately upon surrender for transfer by the holder thereof. (b) The DLJ Entities shall have a period of 90 days from the date of receipt of the Section 4.02 Notice to consummate the Section 4.02 Sale on the terms and conditions set forth in such Section 4.02 Sale Notice. If the Section 4.02 Sale shall not have been consummated during such period, DLJMB shall return to each of the Other Stockholders all certificates representing Company Securities that such Other Stockholder delivered for transfer pursuant hereto, together with any documents in the possession of DLJMB executed by the Other Stockholder in connection with such proposed Section 4.02 Sale, and all the restrictions on transfer contained in this Agreement or otherwise applicable at such time with respect to the Company Securities owned by the Other Stockholders shall again be in effect. (c) Concurrently with the consummation of any Section 4.02 Sale pursuant to this Section 4.02 and Section 4.03, DLJMB shall give notice thereof to all Stockholders, shall remit to each Stockholder who has surrendered certificates in connection with such Section 4.02 Sale the total consideration (by bank or certified check) for the Company Securities represented by such Stockholder's certificates and shall furnish such other evidence of the completion and time of completion of such Section 4.02 Sale and the terms thereof as may be reasonably requested by such Stockholders. Section 4.03. CERTAIN RIGHTS. It is understood and agreed that the employment agreements or associated restricted stock purchase agreements between one or more Management Stockholders and the Company or any Subsidiary may contain provisions permitting or requiring, under certain circumstances, such Management Stockholders to sell to the Company or a Subsidiary, and permitting or requiring, under certain circumstances, the Company or such Subsidiary to purchase from such Management Stockholder, Common Shares. Such provisions may, by the terms of such agreements, remain effective notwithstanding that the employment relationship created by such employment agreements has been terminated, in which event such provisions are deemed to be incorporated herein and made a part hereof, to the extent appropriate. 19 ARTICLE 5 Registration Rights Section 5.01. DEMAND REGISTRATION. (a) If the Company shall receive a written request by either (x) the DLJ Entities or their Permitted Transferees or (y) the Requisite DLJIP Entities (any such requesting Person, a "SELLING STOCKHOLDER") that the Company effect the registration under the Securities Act, which, in the case of the Requisite DLJIP Entities, shall be a Shelf Registration, of all or a portion of such Selling Stockholder's Registrable Securities, and specifying the intended method of disposition thereof, then the Company shall promptly give written notice of such requested registration (a "DEMAND REGISTRATION") at least 10 days prior to the anticipated filing date of the registration statement relating to such Demand Registration to the Stockholders other than the Selling Stockholders and thereupon will use its best efforts to effect, as expeditiously as possible, the registration under the Securities Act of: (i) the Registrable Securities then held by the Selling Stockholders which the Company has been so requested to register by the Selling Stockholders; and (ii) subject to the restrictions set forth in Section 3.04, all other Registrable Securities of the same type as that to which the request by the Selling Stockholders relates which any Other Stockholder entitled to request the Company to effect an Incidental Registration (as such term is defined in Section 5.02) pursuant to Section 5.02 (all such Stockholders, together with the Selling Stockholders, the "HOLDERS") has requested the Company to register by written request received by the Company within 5 days after the receipt by such Holders of such written notice given by the Company, all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; PROVIDED that, subject to Section 5.01(d) hereof, (I) the Company shall not be obligated to effect more than six Demand Registrations for the DLJ Entities and (II) the Company shall not be obligated to effect more than two Demand Registrations for the Requisite DLJIP Entities; and PROVIDED, FURTHER, that the Company shall not be obligated to effect any Demand Registration for the DLJ Entities unless the aggregate proceeds expected to be received from the sale of Registrable Securities to be included in such Demand Registration, in the reasonable opinion of DLJMB exercised in good faith, equal or exceed (x) $25,000,000 if such Demand Registration would constitute the Initial Public Offering, or (y) $10,000,000 in all other cases. In no event will the Company be 20 required to effect more than one Demand Registration within any four-month period. (b) Promptly after the expiration of the 5-day period referred to in Section 5.01(a)(ii) hereof, the Company will notify all the Holders to be included in the Demand Registration of the other Holders and the number of Registrable Securities requested to be included therein. The Selling Stockholders requesting a registration under this Section may, at any time prior to the effective date of the registration statement relating to such registration, revoke such request, without liability to any of the other Holders, by providing a written notice to the Company revoking such request, in which case such request, so revoked, shall be considered a Demand Registration unless the participating Stockholders reimburse the Company for all costs incurred by the Company in connection with such registration or unless such revocation arose out of the fault of the Company. (c) The Company will pay all Registration Expenses in connection with any Demand Registration. (d) A registration requested pursuant to this Section shall not be deemed to have been effected unless the registration statement relating thereto (A) has become effective under the Securities Act and (B) has remained effective for a period of at least 180 days (or such shorter period in which all Registrable Securities of the Holders included in such registration have actually been sold thereunder); PROVIDED that if (i) after any registration statement requested pursuant to this Section becomes effective (x) such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court and (y) less than 75% of the Registrable Securities included in such registration statement is sold thereunder, or (ii) the Maximum Offering Size (as defined below) is reduced in accordance with Section 5.01(e) such that less than 66 2/3% of the Registrable Securities of the Selling Stockholders sought to be included in such registration are included, such registration statement shall be at the sole expense of the Company and shall not be considered a Demand Registration; and PROVIDED FURTHER that, in the event of any Black Out Period (defined below), any Shelf Registration will remain effective for a period of time equal to 180 days plus the length of such Black Out Period. Notwithstanding the foregoing, the Company shall not be required to file, amend or supplement any Shelf Registration, any related prospectus or any document incorporated therein by reference, for a period (a "BLACK OUT PERIOD") not to exceed an aggregate of 60 days in any calendar year, in the event that (i) in the case of any amendment or supplement only, an event occurs and is continuing as a result of which the Shelf Registration, any related prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a 21 material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) in all cases, (A) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction which has not yet been publicly disclosed; PROVIDED that such Black Out Period shall be extended for any period, not to exceed an aggregate of 30 days in any calendar year, during which the SEC is reviewing any proposed amendment or supplement to the Shelf Registration, any related prospectus or any document incorporated therein by reference which has been filed by the Company. (e) If a Demand Registration involves an Underwritten Public Offering and the managing underwriter shall advise the Company and the Selling Stockholders that, in its view,(i) the number and/or type of Registrable Securities requested to be included in such registration (including any securities which the Company proposes to be included which are not Registrable Securities) or (ii) the inclusion of some or all of the Registrable Securities owned by the Holders, in any such case, exceeds the largest number and/or type of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold (the "MAXIMUM OFFERING SIZE"), the Company will include in such registration, in the priority listed below, up to the Maximum Offering Size: (A) first, all Registrable Securities requested to be registered by the Selling Stockholders (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of shares of Registrable Securities so requested to be registered); (B) second, all Registrable Securities requested to be included in such registration by any other Holder and their Permitted Transferees (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of shares of Registrable Securities so requested to be included); and (C) third, any securities proposed to be registered by the Company. (f) If, in connection with any Demand Registration pursuant to this Section or any sale pursuant to Rule 144A under the Securities Act with respect to the Common Shares, Preferred Shares or shares of Senior Preferred Stock, any Selling Stockholder shall seek to transfer any Warrants together with Common 22 Shares, Preferred Shares or shares of Senior Preferred Stock, the Company shall at the request of any such Selling Stockholder effect a registration of such Warrants to which the provisions of this Article 5 shall apply MUTATIS MUTANDIS and a registration, pursuant to a Shelf Registration, so as to permit the resale of the Common Shares for which any Warrants so transferred may be exercisable. The Company shall maintain the effectiveness of any such Shelf Registration, and take all actions necessary to permit resale of such Common Shares as may be required by applicable state securities laws. Section 5.02. INCIDENTAL REGISTRATION. (a) If the Company proposes to register any Company Securities under the Securities Act (other than a registration of Common Shares (A) issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or (B) in connection with a direct or indirect acquisition by the Company of another company), whether or not for sale for its own account, it will each such time, subject to the provisions of Section 5.02(b), give prompt written notice at least 10 days prior to the anticipated filing date of the registration statement relating to such registration to each DLJ Entity and each Other Stockholder, which notice shall set forth such Stockholder's rights under this Section 5.02 and shall offer such Stockholders the opportunity to include in such registration statement such number of Registrable Securities of the same type as are proposed to be registered as each such Stockholder may request (an "INCIDENTAL REGISTRATION"). Upon the written request of any such Stockholder made within 5 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Stockholder), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by such Stockholders, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; PROVIDED that (1) if such registration involves an Underwritten Public Offering, all such Stockholders requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected as provided in Section 5.04(f) on the same terms and conditions as apply to the Company and (2) if, at any time after giving written notice of its intention to register any stock pursuant to this Section 5.02(a) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all such Stockholders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (without prejudice, however, to the rights of any DLJ Entity under Section 5.01). No registration effected under this Section 5.02 shall relieve the Company of its obligations to effect a Demand Registration to the extent required by Section 5.01. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 5.02. 23 (b) If a registration pursuant to this Section 5.02 involves an Underwritten Public Offering (other than in the case of an Underwritten Public Offering requested by a Selling Stockholder in a Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 5.01(e) shall apply) and the managing underwriter advises the Company that, in its view, the number and/or type of shares of Registrable Securities which the Company and the Stockholders intend to include in such registration exceeds the Maximum Offering Size, the Company will include in such registration, in the priority listed below, up to the Maximum Offering Size: (i) first, so much of the securities proposed to be registered for the account of the Company as would not cause the offering to exceed the Maximum Offering Size; and (ii) second, all Registrable Securities requested to be included in such registration pursuant to Section 5.02 (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Stockholders on the basis of the relative number of shares of Registrable Securities requested to be so included). Section 5.03. HOLDBACK AGREEMENTS. If any registration of Registrable Securities shall be in connection with an Underwritten Public Offering, each Stockholder agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144, or any successor provision, under the Securities Act, of any Registrable Securities, and not to effect any such public sale or distribution of any Common Shares or of any stock convertible into or exchangeable or exercisable for any Common Shares (in each case, other than as part of such Underwritten Public Offering) during the 14 days prior to the effective date of such registration statement (except as part of such registration) or during the period after such effective date equal to the lesser of (i) such period of time as agreed between such managing underwriter and the Company and (ii) 180 days (such lesser period, the "APPLICABLE HOLDBACK PERIOD"). Section 5.04. REGISTRATION PROCEDURES. Whenever Stockholders request that any Registrable Securities be registered pursuant to Section 5.01 or 5.02, the Company will, subject to the provisions of such Sections, use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the SEC a registration statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered 24 thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days. (b) The Company will, if requested, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Stockholder holding Registrable Securities covered by such registration statement and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter the Company will furnish to such Stockholder and underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Stockholder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Stockholder. (c) After the filing of the registration statement, the Company will promptly notify each Stockholder holding Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (d) The Company will use its best efforts to (i) register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions in the United States as any Stockholder holding such Registrable Securities reasonably (in light of such Stockholder's intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Stockholder to consummate the disposition of the Registrable Securities owned by such Stockholder; PROVIDED that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d),(B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (e) The Company will immediately notify each Stockholder holding such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such 25 prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly prepare and make available to each such Stockholder any such supplement or amendment. (f) (i)The DLJ Entities will have the right, in their sole discretion, to select an underwriter or underwriters in connection with any Public Offering resulting from the exercise by any such DLJ Entity or its Permitted Transferee of a Demand Registration, which underwriter or underwriters may include any Affiliate of any DLJ Entity and (ii) the Company will select an underwriter or underwriters in connection with any other Public Offering. In connection with any Public Offering, the Company will enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities in any such Public Offering, including the engagement of a "qualified independent underwriter" in connection with the qualification of the underwriting arrangements with the NASD. (g) Upon the execution of confidentiality agreements in form and substance satisfactory to the Company, the Company will make available for inspection by any Stockholder and any underwriter participating in any disposition pursuant to a registration statement being filed by the Company pursuant to this Section 5.04 and any attorney, accountant or other professional retained by any such Stockholder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each Stockholder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the Company Securities or its Affiliates unless and until such is made generally available to the public. Each Stockholder further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. 26 (h) The Company will furnish to each such Stockholder and to each such underwriter, if any, a signed counterpart, addressed to such underwriter, of (i)an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as a majority of such Stockholders or the managing underwriter therefor reasonably requests. (i) The Company will otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its stockholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. The Company may require each such Stockholder to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration. Each such Stockholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5.04(e), such Stockholder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5.04(e), and, if so directed by the Company, such Stockholder will deliver to the Company all copies, other than any permanent file copies then in such Stockholder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event that the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 5.04(a)) by the number of days during the period from and including the date of the giving of notice pursuant to Section 5.04(e) to the date when the Company shall make available to such Stockholder a prospectus supplemented or amended to conform with the requirements of Section 5.04(e). Each Stockholder agrees that, upon receipt of the notice from the Company of the commencement of a Black Out Period (in each case, a "BLACK OUT NOTICE"), such Person will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration until such Person is advised in 27 writing by the Company of the termination of the Black Out Period. Each Person receiving a Black Out Notice hereby agrees that it will either (i) destroy any prospectuses, other than permanent file copies, then in such Person's possession which have been replaced by the Company with more recently dated prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Person's possession of the prospectus covering such Registrable Securities that was current at the time of receipt of the Black Out Notice. Section 5.05. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Stockholder holding Registrable Securities covered by a registration statement, its officers, directors and agents, and each person, if any, who controls such Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by such Stockholder or on such Stockholder's behalf expressly for use therein; PROVIDED that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any such loss, claim, damage, liability or expense results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such person if it is determined that the Company has provided such prospectus and it was the responsibility of such Stockholder to provide such person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The Company also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Stockholders provided in this Section 5.05. 28 Section 5.06. INDEMNIFICATION BY PARTICIPATING STOCKHOLDERS. Each Stockholder holding Registrable Securities included in any registration statement agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Stockholder, but only (i) with respect to information furnished in writing by such Stockholder or on such Stockholder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any loss, claim, damage, liability or expense described in Section 5.05 results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the Person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that it was the responsibility of such Stockholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. Each such Stockholder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 5.06. As a condition to including Registrable Securities in any registration statement filed in accordance with Article 5 hereof, the Company may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities. Section 5.07. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 5, such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses; PROVIDED that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party 29 shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding. Section 5.08. CONTRIBUTION. If the indemnification provided for in this Article 5 is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) as between the Company and the Stockholders holding Registrable Securities covered by a registration statement on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such Stockholders on the one hand and the underwriters on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such Stockholders on the one hand and of such underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations and (ii) as between the Company on the one hand and each such Stockholder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such Stockholder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and such Stockholders on the one hand and such underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts 30 and commissions but before deducting expenses) received by the Company and such Stockholders bear to the total underwriting discounts and commissions received by such underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and such Stockholders on the one hand and of such underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and such Stockholders or by such underwriters. The relative fault of the Company on the one hand and of each such Stockholder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 5.08 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5.08, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Stockholder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Stockholder were offered to the public exceeds the amount of any damages which such Stockholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each such Stockholder's obligation to contribute pursuant to this Section 5.08 is several in the proportion that the proceeds of the offering received by such Stockholder bears to the total proceeds of the offering received by all such Stockholders and not joint. Section 5.09. PARTICIPATION IN PUBLIC OFFERING. No Person may participate in any Public Offering hereunder unless such Person (a) agrees to sell 31 such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights. Section 5.10. OTHER INDEMNIFICATION. Indemnification similar to that specified herein (with appropriate modifications) shall be given by the Company and each Stockholder participating therein with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. Section 5.11. COOPERATION BY THE COMPANY. In the event any Stockholder shall transfer any Registrable Securities pursuant to Rule 144A under the Securities Act, the Company shall cooperate, to the extent commercially reasonable, with such Stockholder and shall provide to such Stockholder such information as such Stockholder shall reasonably request. ARTICLE 6 Miscellaneous Section 6.01. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. Section 6.02. BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, expressed or implied, shall confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 6.03. EXCLUSIVE FINANCIAL AND INVESTMENT BANKING ADVISOR. During the period from and including the date of the Original Agreement through and including the fifth anniversary of such date, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), or any Affiliate of DLJSC that the DLJ Entities may choose in their sole discretion, shall be engaged as the exclusive financial and investment banking advisor of the Company. DLJSC or such Affiliate shall be entitled to reimbursement from the Company for all expenses incurred by DLJSC or such 32 Affiliate (including, without limitation, fees and expenses of counsel) as financial and investment banking advisor of the Company. Section 6.04. ASSIGNABILITY. This Agreement shall not be assignable by any party hereto, except that any Person acquiring Company Securities who is required by the terms of this Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan of the Company or any Subsidiary to become a party hereto shall (unless already bound hereby) execute and deliver to the Company an agreement to be bound by this Agreement and shall thenceforth be a "STOCKHOLDER"; PROVIDED that, except as otherwise provided in Section 2.06, the DLJIP Entities and their Permitted Transferees may assign their rights and obligations under this Agreement to any Person acquiring Company Securities upon execution by such Person of an agreement to be bound by this Agreement, which Person shall thenceforth be a "STOCKHOLDER". Any Stockholder who ceases to own beneficially any Company Securities shall cease to be bound by the terms hereof (other than the provisions of Sections 5.05, 5.06, 5.07, 5.08, and 5.10 applicable to such Stockholder with respect to any offering of Registrable Securities completed before the date such Stockholder ceased to own any Company Securities). Section 6.05. AMENDMENT; WAIVER; TERMINATION. No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by the Company with the approval of the Board and Stockholders holding at least 75% of the outstanding Shares. Section 6.06. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmissions and shall be given, 33 if to the Company, to: DeCrane Holdings Co. 2361 Rosecrans Avenue Suite 180 El Segundo, CA 90245 Attention: R. Jack DeCrane Fax: (310) 643-0746 if to Opco, to: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue Suite 180 El Segundo, CA 90245 Attention: R. Jack DeCrane Fax: (310) 643-0746 if to the DLJ Entities, to: DLJ Merchant Banking Partners II, L.P. 277 Park Avenue New York, New York 10172 Attention: Thompson Dean Fax: (212) 892-7272 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: George R. Bason, Jr., Esq. Fax: (212) 450-4800 if to the DLJIP Entities, to: DLJ Investment Partners II, Inc. 277 Park Avenue New York, New York 10172 Attention: Michelle Bergman Fax: (212) 892-7272 34 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Attention: John Schuster, Esq. Fax: (212) 269-5420 All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified mail, return receipt requested, posted within one Business Day, or by personal delivery, whether courier or otherwise, made within two Business Days after the date of such facsimile transmission. Any Person who becomes a Stockholder shall provide its address and fax number to the Company, which shall promptly provide such information to each DLJ Entity and each other Stockholder. Section 6.07. HEADINGS. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. Section 6.08. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Section 6.09. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE. Section 6.10. SPECIFIC ENFORCEMENT. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies which may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. 35 Section 6.11. CONSENT TO JURISDICTION. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 6.06 shall be deemed effective service of process on such party. 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. DECRANE HOLDINGS CO. By: _________________________________ Name: Title: DECRANE AIRCRAFT HOLDINGS, INC. By: __________________________________ Name: Title: DLJ MERCHANT BANKING PARTNERS II, L.P. BY DLJ MERCHANT BANKING II, INC. Managing General Partner By: _________________________________ Name: Title: DLJ MERCHANT BANKING PARTNERS II-A, L.P. BY DLJ MERCHANT BANKING II, INC., Managing General Partner By: _________________________________ Name: Title: DLJ OFFSHORE PARTNERS II, C.V. BY DLJ MERCHANT BANKING II, INC., Advisory General Partner By: _________________________________ Name: Title: DLJ DIVERSIFIED PARTNERS, L.P. BY DLJ DIVERSIFIED PARTNERS, INC., Managing General Partner By: _________________________________ Name: Title: DLJ DIVERSIFIED PARTNERS-A, L.P. BY DLJ DIVERSIFIED PARTNERS, INC., Managing General Partner By: _________________________________ Name: Title: DLJMB FUNDING II, INC. By: _________________________________ Name: Title: DLJ EAB PARTNERS, L.P. BY DLJ LBO PLANS MANAGEMENT CORPORATION, General Partner By: _________________________________ Name: Title: DLJ MILLENNIUM PARTNERS, L.P. BY DLJ MERCHANT BANKING II, INC., Managing General Partner By: _________________________________ Name: Title: UK INVESTMENT PLAN 1997 PARTNERS BY UK INVESTMENT PLAN 1997, INC., General Partner By: _________________________________ Name: Title: DLJ FIRST ESC L.P. BY DLJ LBO PLANS MANAGEMENT CORPORATION, as General Partner By: _________________________________ Name: Title: DLJ ESC II L.P. BY DLJ LBO PLANS MANAGEMENT CORPORATION, as General Partner By: _________________________________ Name: Title: DLJ MILLENNIUM PARTNERS-A, L.P. BY DLJ MERCHANT BANKING II, INC., Managing General Partner By: _________________________________ Name: Title: DLJ INVESTMENT PARTNERS, L.P. BY DLJ INVESTMENT PARTNERS, INC., as Managing General Partner By: _________________________________ Name: Title: DLJ INVESTMENT PARTNERS II, L.P. BY DLJ INVESTMENT PARTNERS II, INC., as Managing General Partner By: _________________________________ Name: Title: DLJ INVESTMENT FUNDING II, INC. By: _________________________________ Name: Title: EX-21.1 12 ex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF REGISTRANT SUBSIDIARIES OF DECRANE AIRCRAFT HOLDINGS, INC. AEROSPACE DISPLAY SYSTEMS, LLC, a Delaware limited liability company. AUDIO INTERNATIONAL, INC., an Arkansas corporation. AVTECH CORPORATION, a Washington corporation. CARL F. BOOTH & CO., LLC, a Delaware limited liability company. CORY COMPONENTS, INC., a California corporation. CUSTOM WOODWORK & PLASTICES, LLC, a Delaware limited liability company. DAH-IP HOLDINGS, INC., a Delaware corporation. DAH-IP INFINITY, INC., a Delaware corporation. DECRANE AIRCRAFT FURNITURE CO., LP, a Texas limited partnership. DECRANE AIRCRAFT INTERNATIONAL SALES, INC., a Barbados corporation. DETTMERS INDUSTRIES, INC., a Delaware corporation. ELSINORE AEROSPACE SERVICES, INC., a California corporation. ELSINORE ENGINEERING, INC., a Delaware corporation. ERDA, INC., a Wisconsin Corporation. FLIGHT REFUELING, INC., a Maryland corporation. HOLLINGSEAD INTERNATIONAL, INC., a California corporation. HOLLINGSEAD INTERNATIONAL, LTD., a UK company. INTERNATIONAL CUSTOM INTERIORS, INC., a Florida corporation. PATRICK AIRCRAFT TANK SYSTEMS, INC., a Maryland corporation. PATS AIRCRAFT AND ENGINEERING CORPORATION, a Maryland corporation. PATS SUPPORT, INC., a Maryland corporation. PATS, INC., a Maryland corporation. PCI NEWCO., INC., a Delaware Corporation. PPI HOLDINGS, INC., a Kansas corporation. PRECISION PATTERN, INC., a Kansas corporation. THE INFINITY PARTNERS, LTD., a Texas limited partnership. TRI-STAR ELECTRONICS EUROPE S.A., a Swiss company. TRI-STAR ELECTRONICS INTERNATIONAL, INC., a California corporation. TRI-STAR TECHNOLOGIES, a California general partnership. -----END PRIVACY-ENHANCED MESSAGE-----