-----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, JfDjk5Gv9Tvo7uYnUi3p4EIW3OLygys1qZJB1IZlyGNTLPa4UknswJNS2dYB5/oC XvmirK+AYStAQwtxT7c7Ng== 0001047469-98-026894.txt : 19980714 0001047469-98-026894.hdr.sgml : 19980714 ACCESSION NUMBER: 0001047469-98-026894 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980626 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980710 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECRANE AIRCRAFT HOLDINGS INC CENTRAL INDEX KEY: 0000880765 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 341645569 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22371 FILM NUMBER: 98664146 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 BUSINESS PHONE: (310)-725-9123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 8-K 1 FORM 8-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 June 26, 1998 Date of Report (Date of earliest event reported) ------------------------ DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-22371 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) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. ACQUISITION OF AVTECH CORPORATION On June 4, 1998, the Company announced that it signed a definitive agreement to purchase substantially all of the outstanding stock of Avtech Corporation ("Avtech"). The purchase was consummated on June 26, 1998. Avtech is a leading provider of cockpit audio, lighting and power control devices and an avionics systems integrator for the commercial, regional and corporate jet aircraft markets. Avtech is located in Seattle, Washington. The total purchase price was $84.7 million in cash at closing, including an estimated $1.3 million of acquisition related costs. The acquisition was funded with borrowings under the Company's senior revolving line of credit ("Senior Credit Facility"). In conjunction with the acquisition, the Senior Credit Facility was amended to increase the permitted maximum borrowings by $30.0 million to $105.0 million, effective with the closing of the acquisition. The permitted maximum borrowings are subject to mandatory reductions of up to $45.0 million from the proceeds of certain indebtedness and further automatic reductions on the last day of each month in a monthly amount of $500,000 from October 31, 1998 through May 31, 1999 and $1.0 million per month thereafter. The maximum interest rate margins were increased 0.25% to 1.00% above the prime rate or 2.25% above the IBOR rate and the maximum commitment fee was increased to 0.425% on the unused portion of the Senior Credit Facility. The transaction will be accounted for as a purchase and the estimated $60.4 million difference between the purchase price and the fair value of the net assets acquired will be recorded as goodwill and amortized on a straight-line basis over 30 years. The Company's consolidated results of operations will include the operating results of Avtech subsequent to June 26, 1998. Copies of the press releases issued by the Company on June 4 and 26, 1998 with respect to the Avtech acquisition are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference. ACQUISITION OF DETTMERS INDUSTRIES, INC. On June 30, 1998, the Company purchased certain assets, subject to certain liabilities assumed, of Dettmers Industries, Inc. ("Dettmers"). Dettmers is a manufacturer of aircraft seats and related cabin furnishings for corporate jet aircraft. Dettmers is located in Stuart, Florida. The total purchase price was $2.3 million in cash at closing, including an estimated $141,000 of acquisition related costs, plus contingent consideration aggregating a maximum of $2.0 million payable over four years based on future attainment of defined performance criteria during each of the years in the four year period ending December 31, 2002. The acquisition was funded with borrowings under the Company's Senior Credit Facility. The transaction will be accounted for as a purchase and the estimated $2.0 million difference between the purchase price, excluding contingent consideration, and the fair value of the net assets acquired will be recorded as goodwill and amortized on a straight-line basis over 30 years. The amount of contingent consideration paid in the future, if any, will increase goodwill and will be amortized prospectively over the remaining period of the initial 30-year term. The Company's consolidated results of operations will include the operating results of Dettmers subsequent to June 30, 1998. A copy of the press release issued by the Company on July 1, 1998 with respect to the Dettmers acquisition is attached hereto as Exhibit 99.3 and is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. a. Financial statements of businesses acquired. 1 Audited financial statements of Avtech Corporation, including notes thereto and auditors' report thereon, as of September 30, 1997 and 1998 and March 31, 1998 and for each of the three years in the period ended September 30, 1997 and the six months ended March 31, 1998 are filed herewith as Exhibit 99.4 and are incorporated herein by reference. The acquisition of Dettmers Industries, Inc. is not "significant" as such term is defined in Regulation S-X and therefore audited financial statements are not filed herewith. b. Pro forma financial information. Unaudited pro forma consolidated financial data, including explanatory notes thereto, as of March 31, 1998 and for the three months ended March 31, 1998 and the twelve months ended December 31, 1997 are filed herewith as Exhibit 99.5 and are incorporated herein by reference. c. Exhibits.
EXHIBIT NO. EXHIBIT DESCRIPTION - ------ -------------------------------------------------------------------------- 2.1 Stock Purchase and Sale Agreement by and among the shareholders of Avtech Corporation and DeCrane Aircraft Holdings, Inc. * 2.2 Asset Purchase and Sale Agreement by and among Dettmers Industries, Inc., Peter Dettmers and Andrew Perl, and DeCrane Aircraft Holdings, Inc. and DAHX Acquisition, Inc. * 10.1 Consent and Amendment No. 3 to Loan and Security Agreement dated as of May 29, 1998 among DeCrane Aircraft Holdings, Inc., Bank of America National Trust and Savings Association, successor-by-merger to Bank of America Illinois, as agent and lender, and Comerica Bank--California, Mellon Bank, N.A. and Sumitomo Bank of California, as lenders * 99.1 Press release issued by DeCrane Aircraft Holdings, Inc. on June 4, 1998 regarding the signing of a definitive agreement to acquire Avtech Corporation incorporated by reference in Item 2 of this report ** 99.2 Press release issued by DeCrane Aircraft Holdings, Inc. on June 26, 1998 regarding consummation of the acquisition of Avtech Corporation incorporated by reference in Item 2 of this report * 99.3 Press release issued by DeCrane Aircraft Holdings, Inc. on July 1, 1998 regarding consummation of the acquisition of Dettmers Industries, Inc. incorporated by reference in Item 2 of this report * 99.4 Audited financial statements of Avtech Corporation, including notes thereto and auditors' report thereon, as of September 30, 1996 and 1997 and March 31, 1998 and for each of the three years in the period ended September 30, 1997 and the six months ended March 31, 1998 incorporated by reference in Item 7(a) of this report * 99.5 Unaudited pro forma consolidated financial data, including explanatory notes thereto, as of March 31, 1998 and for the three months ended March 31, 1998 and the twelve months ended December 31, 1997 incorporated by reference in Item 7(b) of this report *
- ------------------------ * -- Filed herewith ** -- Previously filed June 5, 1998 on Form 8-K dated June 4, 1998. 2 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) July 10, 1998 By: /s/ ROBERT A. RANKIN ----------------------------------------- Name: Robert A. Rankin Title: CHIEF FINANCIAL OFFICER AND SECRETARY
3 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION - ----------- ------------------------------------------------------------------------------------------------ 2.1 Stock Purchase and Sale Agreement by and among the shareholders of Avtech Corporation. and DeCrane Aircraft Holdings, Inc. *............................................................. 2.2 Asset Purchase and Sale Agreement by and among Dettmers Industries, Inc., Peter Dettmers and Andrew Perl, and DeCrane Aircraft Holdings, Inc. and DAHX Acquisition, Inc. *................. 10.1 Consent and Amendment No. 3 to Loan and Security Agreement dated as of May 29, 1998 among DeCrane Aircraft Holdings, Inc., Bank of America National Trust and Savings Association, successor-by-merger to Bank of America Illinois, as agent and lender, and Comerica Bank--California, Mellon Bank, N.A. and Sumitomo Bank of California, as lenders *............. 99.1 Press release issued by DeCrane Aircraft Holdings, Inc. on June 4, 1998 regarding the signing of a definitive agreement to acquire Avtech Corporation incorporated by reference in Item 2 of this report ** 99.2 Press release issued by DeCrane Aircraft Holdings, Inc. on June 26, 1998 regarding consummation of the acquisition of Avtech Corporation incorporated by reference in Item 2 of this report *............................................................................................. 99.3 Press release issued by DeCrane Aircraft Holdings, Inc. on July 1, 1998 regarding consummation of the acquisition of Dettmers Industries, Inc. incorporated by reference in Item 2 of this report *...................................................................................... 99.4 Audited financial statements of Avtech Corporation, including notes thereto and auditors' report thereon, as of September 30, 1996 and 1997 and March 31, 1998 and for each of the three years in the period ended September 30, 1997 and the six months ended March 31, 1998 incorporated by reference in Item 7(a) of this report *....................................................... 99.5 Unaudited pro forma consolidated financial data, including explanatory notes thereto, as of March 31, 1998 and for the three months ended March 31, 1998 and the twelve months ended December 31, 1997 incorporated by reference in Item 7(b) of this report *.....................
- ------------------------ * -- Filed herewith ** -- Previously filed June 5, 1998 on Form 8-K dated June 4, 1998. EX-2.1 2 STOCK PURCHASE AND SALE AGREEMENT EXHIBIT 2.1 STOCK PURCHASE AND SALE AGREEMENT This Stock Purchase and Sale Agreement ("Agreement") is made and entered into by and among the persons named on the signature page who are the owners of the number of shares specified on Schedule A (the "Shareholders," some of whom are designated on Schedule A and referred to herein as the "Principal Shareholders") of Avtech Corporation ("Avtech") and DeCrane Aircraft Holdings, Inc. ("DAH"), based on the following facts: Shareholders own not less than 90% of the outstanding stock of Avtech (the "Stock"); and desire to sell the Stock to DAH; DAH desires to purchase not less than 90% of the Stock from the Shareholders on the terms and conditions of this Agreement. Based on the foregoing facts and circumstances, the parties hereby agree as follows (capitalized terms being used herein as defined where noted in Schedule B): 1. STOCK TO BE PURCHASED AND SOLD; PURCHASE PRICE. 1.1 PURCHASE AND SALE OF STOCK. At the Closing, DAH shall purchase from the Shareholders not less than 90% and up to 100% of the Stock for the amount specified in Section 1.2. Schedule A reflects the percentage of the aggregate payments to be made pursuant to Sections 1.2.1 and 1.2.2 to each of the Shareholders. 1.2 PURCHASE PRICE OF THE STOCK. 1.2.1 On the Closing Date, DAH shall make a wire transfer in same-day funds to the entity agreed upon by the parties as the paying agent for the Shareholders (the "Paying Agent"), for the account of the Shareholders and to such account as the Paying Agent specifies, in a sum equal to the product of multiplying (a) the percentage representing the pro rata number of shares being sold by the Shareholders to DAH on such date by (b) $79 million, but subject to the adjustments set forth in Section 1.2.3. 1.2.2 On the Closing Date, DAH shall make a wire transfer in same-day funds to the entity agreed upon by the parties as the escrow agent (the "Escrow Agent"), to be held by the Escrow Agent pursuant to the terms of the Escrow Agreement executed among such Escrow Agent and the parties thereto (the "Escrow Agreement"), in a sum equal to the product of multiplying (a) the percentage representing the pro rata number of shares being sold by the Shareholders to DAH on such date by (b) $4 million. 1.2.3 In determining the amount pursuant to Section 1.2.1 and subject to the pro rata adjustment provided for in Section 1.2.1 in the event that DAH purchases less than 100% of the Stock, the purchase price shall be (i) increased by the amount of cash held by Avtech in the accounts listed on Schedule 2.2.12 (the "Cash") to the extent that such amount exceeds $650,000 (the "Minimum Amount") or decreased if the amount is less than the Minimum Amount by the difference between the Cash and the Minimum Amount at Closing. (i) to the extent there are any unpaid Shareholder Closing Expenses on the Closing Date, such expenses shall be paid by the Paying Agent; to the extent that there are Shareholder Closing Expenses which have been advanced by Avtech, the aggregate amount of such expenses shall be reimbursed to Avtech by the Paying Agent on the Closing Date. The sum of the amounts described in this clause (i) shall be deducted from the amount distributed by the Paying Agent to the Shareholders. 1 2. REPRESENTATIONS AND WARRANTIES. 2.1 BY DAH. Except as set forth on Schedule 2.1, the representations and warranties of DAH, contained in this Agreement, including those contained in this Section 2.1, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. DAH hereby represents and warrants to the Shareholders the following: 2.1.1 ORGANIZATION. DAH is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its properties and conduct its business as now being conducted. 2.1.2 AUTHORIZATION. DAH has all requisite corporate power and authority to enter into this Agreement, perform its obligations hereunder and consummate the transactions contemplated hereby. All necessary corporate action has been taken by DAH with respect to the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement, constitutes a valid and binding obligation of DAH, enforceable against DAH, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 2.1.3 BROKERS AND FINDERS. Except for Aerospace Equities, Inc., neither DAH nor any of its officers, directors or employees, has engaged any broker or finder or incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses and no broker or finder has acted directly or indirectly for DAH in connection with this Agreement or the transactions contemplated hereby. 2.1.4 COMPLETE DISCLOSURE. No representation or warranty made by DAH in this Agreement, and no exhibit, schedule or certificate furnished to the Shareholders by or on behalf of DAH pursuant to this Agreement or in connection with the transactions contemplated hereby or thereby, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein not misleading. 2.2 THE SHAREHOLDERS. Except as set forth on Schedule 2.2, the representations and warranties of the Shareholders, contained in this Agreement, including those contained in this Section 2.2, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. The Shareholders severally, but not jointly, represent and warrant to DAH the following: 2.2.1 CORPORATE ORGANIZATION. Avtech is a corporation duly organized and validly existing under the laws of the State of Washington, and has all requisite corporate power and authority to own, lease and operate its properties and conduct its business as now being conducted. Avtech is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates requires it to qualify to do business as a foreign corporation. Except as set forth on Schedule 2.2.1(a), Avtech has not received any written notice or assertion within the last three years from any governmental official of any jurisdiction to the effect that Avtech is required to be qualified or otherwise authorized to do business therein, in which Avtech has not qualified or obtained such authorization. Attached as Schedule 2.2.1(b) are complete and correct copies of Avtech's articles of incorporation and bylaws as in effect on the date hereof, and Avtech is not in default in the performance, observation or fulfillment of any provision of either of its articles of incorporation or bylaws. 2.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital stock of Avtech consists solely of 1,500,000 shares of Common Stock, no par value and options for 150,000 additional 2 shares of Common Stock, all of which Avtech anticipates will be exercised prior to the Closing Date (collectively, the "Avtech Common Shares"); Avtech has issued and outstanding 318,928.9 Avtech Common Shares, constituting all of the issued and outstanding shares of capital stock of any class of Avtech as of the date of this Agreement (not including any Avtech Common Shares attributable to the options which, as of the date of this Agreement, have not been exercised); all outstanding Avtech Common Shares have been (or will be upon exercise of the relevant options) validly issued and are fully paid and non-assessable and free of preemptive rights; except as set forth on Schedule 2.2.2, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, or other commitments or rights of any type relating to the issuance, sale or transfer by Avtech of any securities of Avtech, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of Avtech; and Avtech has no obligation of any kind to issue any additional securities. Schedule A accurately sets forth the names and addresses of, the number of Avtech Common Shares held at the date of this Agreement of record and/or beneficially by, and any Avtech Common Shares to be issued, sold or otherwise transferred at or prior to the Closing Date to, each and every shareholder of Avtech. All of such Avtech Common Shares are owned free and clear of all liens, charges, claims, encumbrances, pledges, security interests, equities and restrictions whatsoever. 2.2.3 AUTHORIZATION OF THE SHAREHOLDERS. Each of the Shareholders has all requisite power, authority and legal capacity and is competent to execute and deliver this Agreement, perform its obligations hereunder and consummate the transactions contemplated hereby. This Agreement constitutes the legal, valid and binding obligation of each of the Shareholders, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 2.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 2.2.4 are (i) the balance sheets of Avtech as at September 30, 1997, 1996, and 1995 and March 31, 1998, (ii) the related statements of income for the years ended September 30, 1997, 1996 and 1995 and the six months ended March 31, 1998, and (iii) the related statements of retained earnings and cash flows for the years ended September 30, 1997, 1996 and 1995 and for the six months ended March 31, 1998 (all of such documents referred to collectively as the "Delivered Financial Statements"). The March 31, 1998 Delivered Financial Statements reflect all "year-end" adjustments presently anticipated. The Delivered Financial Statements (i) are true, correct and complete in all material respects, (ii) have been prepared from and are in accordance with the books and records of Avtech, (iii) have been prepared using an accrual basis method and FIFO inventory cost flow assumptions, (iv) are in conformity with generally accepted accounting principles applied on a consistent basis for such periods, and (v) fairly present the financial position of Avtech as of the dates stated and the results of operations and cash flows of Avtech for the periods then ended in accordance with such practices. On the date of this Agreement, Avtech does not have any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the balance sheets in the Delivered Financial Statements. Since March 31, 1998, there has been no material adverse change in the financial condition, operations, business or prospects taken as a whole of Avtech from that set forth in the March 31, 1998 Delivered Financial Statements. The Shareholders covenant and agree to deliver to DAH at or prior to the Closing Date, the unqualified opinion that the financial statements are prepared in accordance with GAAP and the requirements of Regulation S-X promulgated by the Securities and Exchange Commission ("Regulation S-X") of an independent accounting firm reasonably satisfactory to DAH as respects each of the Delivered Financial Statements (including the March 31, 1998 Delivered Financial Statements). When such unqualified opinion is delivered, such financial statements shall be referred to as the "Audited Financial Statements". When delivered, the 3 Audited Financial Statements shall not differ in any material respect from the Delivered Financial Statements. 2.2.5 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set forth on Schedule 2.2.5, since March 31, 1998, there has not been: (a) Any material adverse change in the business operations, assets, properties or rights, prospects or condition (financial or otherwise) of Avtech or, any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change (a "Material Adverse Effect"); (b) Any material increase in amounts payable by Avtech to or for the benefit of, or committed to be paid by Avtech: (A) to or for the benefit of (x) any Key Employee or (y) in the aggregate, to persons who are shareholders, directors, officers, partners, consultants, agents and employees, in any capacity, of Avtech but who are not Key Employees or (B) in any benefits granted under any bonus, stock option, profit sharing, pension, retirement, deferred compensation, insurance, or other direct or indirect benefit plan, payment or arrangement made to, for the benefit of, or with (x) any Key Employee or (y) in the aggregate, all other persons described in this Section 2.2.5(b); (c) Any transaction entered into or carried out by Avtech other than in the ordinary and usual course of business; (d) Any borrowing or agreement to borrow funds; any incurring of any assumption, guarantee or other obligation or liability, contingent or otherwise, or any assumption or performance of any loan or obligation of any other entity, except (i) current liabilities incurred in the usual and ordinary course of business or (ii) otherwise, those in an amount not exceeding in the aggregate $50,000 at any one time outstanding; (e) Any material change made by Avtech in the methods of doing business, or other than such changes required by GAAP, any change in the accounting principles or practices of Avtech with respect to the Delivered Financial Statements or the method of application of such principles or practices; (f) Any mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance imposed or agreed to be imposed on or with respect to any of the parcels of real property owned or used by Avtech in the conduct of its business or in which Avtech otherwise holds an interest (the "Real Property") or any material mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance imposed or agreed to be imposed on or with respect to any of the tangible or intangible personal property of Avtech (the "Personal Property") (the Real Property and the Personal Property are collectively the "Property"); (g) Any sale, lease or other disposition of or any agreement to sell, lease or otherwise dispose of any of the properties or assets of Avtech, other than sales of finished goods in the usual and ordinary course of business and at Avtech's scheduled prices or the prices specified in Material Contracts copies of which have previously been delivered to DAH; (h) Any purchase of or any agreement to purchase capital assets for an amount in excess of $50,000 for any one such purchase or $100,000 for all such purchases made by Avtech or any lease or any agreement to lease, as lessee, any capital assets with payments over the term thereof to be made by Avtech exceeding an aggregate of $50,000 for any one lease or $100,000 in the aggregate; 4 (i) Any loan or advance made by Avtech to any individual, firm, corporation or other entity except for advances not material in amount made in the usual and ordinary course of business to employees; (j) Any modification, waiver, change, amendment, release, rescission or termination of, or accord and satisfaction with respect to, any material term, condition or provision of any material contract, agreement, license or other instrument to which Avtech is a party, other than any satisfaction by performance in accordance with the terms thereof in the usual and ordinary course of business; (k) Any delay or postponement (beyond normal practice) by Avtech of the payment of accounts payable or other liabilities of Avtech; (l) Any acceleration (ahead of normal practice) by Avtech in the collection of accounts receivable; or (m) Any other event or condition of any character which has had a Material Adverse Effect or may reasonably be expected to result in a Material Adverse Effect. 2.2.6 UNDISCLOSED LIABILITIES. Except as disclosed on Schedule 2.2.6, Avtech has no liability or obligation of any nature individually in the amount of $50,000 or in the aggregate in the amount of $100,000 (whether liquidated, unliquidated, accrued, absolute, known or unknown, contingent or otherwise and whether due or to become due) except: (a) those set forth or reflected in the March 31, 1998 Balance Sheet which have not been paid or discharged since the date thereof; (b) those arising under agreements or other commitments expressly identified in any Schedule hereto; and (c) current liabilities incurred in or as a result of the conduct of its business in the ordinary and usual course consistent with past practice since March 31, 1998, which are completely and accurately reflected on its books and records and which are not inconsistent with the other representations, warranties and agreements of Avtech and the Shareholders set forth in this Agreement. 2.2.7 TAXES. Except as set forth on Schedule 2.2.7, Avtech has filed, when due, all federal, state, local and foreign tax returns and tax reports. All amounts payable pursuant to such returns by Avtech through the Closing Date have been paid, or will be timely paid and are adequately provided for in the Delivered Financial Statements. All such returns and reports are true and correct and, except as disclosed on Schedule 2.2.7, none of them has been amended. Schedule 2.2.7 sets forth the dates and results of any and all audits of any tax returns of Avtech performed by federal, state, local or foreign taxing authorities; and no waivers of any statutes of limitation have been made or requested in connection therewith. No deficiency for any material amount of tax has been asserted or assessed by any taxing authority against Avtech. All estimated tax payments have been made except as reserved for in the Balance Sheet included in the March 31, 1998 Delivered Financial Statements, there will not be any amount owing by Avtech for taxes, penalties or interest. 2.2.8 COMPLIANCE WITH LAW. (a) Avtech is in compliance in all material respects with all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered, by any federal, state, local or foreign court or governmental authority or instrumentality relating to Avtech or any of its businesses or properties. 5 (b) Avtech is in compliance in all material respects with all federal, state and local laws, ordinances, rules and regulations pertaining to environmental matters, including solid waste disposal, toxic substances, hazardous substances, hazardous materials, hazardous waste, toxic chemicals, pollutants, contaminants and air or water pollution and to the storage, use, handling, transportation, discharge and disposal (including spills and leaks) of gaseous, liquid, semi-solid or solid materials. Avtech has not, and no third party has, disposed or discharged any chemicals, oil or solid wastes on any part of the Real Property or any other any property owned, operated, leased or used by Avtech. There are no underground storage tanks located on any part of the Real Property or any other property owned, operated, leased or used by Avtech. (c) Schedule 2.2.8(c) contains a complete and accurate list of franchises, licenses, permits, consents, authorization, approvals, and certificates of any regulatory, administrative or other agency or body held by Avtech (collectively, the "Permits"). Each of the Permits is currently valid and in full force and effect and the closing of and the transactions contemplated by this Agreement will not result in the termination of any Permit. The Permits constitute all franchises, licenses, permits, consents, authorizations, approvals and certificates necessary for the conduct of the business of Avtech. Without limiting the foregoing, no consents, authorizations, approvals or similar agreements or acquiescence is required from any issuer or regulator of any Permit to any of the transactions contemplated hereby, except to the extent listed on Schedule 3.1.9. Avtech is not in material violation of any of the Permits and there is no pending or, to the knowledge of the Principal Shareholders, threatened proceeding which could result in the revocation or cancellation of, or inability of Avtech to renew, any Permit. (d) Except as set forth in Schedule 2.2.8(d), Avtech is not under investigation with respect to, and has not been charged with or given notice of, any material violation of any applicable law. 2.2.9 PROPRIETARY RIGHTS. Avtech has all necessary rights, titles and interests to all patents, patent applications, trademarks, trade names, service marks, copyrights, trade secrets, inventions, know-how and other similar rights ("Intellectual Property") which are material to the operation of the business of Avtech. Avtech conducts its business without conflict or infringement with any intellectual property claimed or held by others and, to the best knowledge of the Principal Shareholders, no person has made or threatened any claim or action alleging such conflict or infringement. Schedule 2.2.9 sets forth all of the Intellectual Property owned or used by Avtech, and all registrations thereof with any government office. None of the Intellectual Property is registered with any governmental or regulatory authority except as set forth on Schedule 2.2.9. The amount of each of the royalties and license fees presently paid by or on behalf of Avtech for the use of any Intellectual Property is listed in Schedule 2.2.9. 2.2.10 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the matters listed on Schedule 2.2.10, Avtech is not a party to or bound under any certificate, mortgage, lien, lease, agreement, contract, instrument, vote, order, judgment or decree, or any similar restriction not of general application which materially adversely affects (i) the condition, financial or otherwise, of Avtech or any part of the Property; (ii) the continued operation by DAH of the business of Avtech after the Closing Date on substantially the same basis as said business was theretofore operated; or (iii) the consummation of the transactions contemplated in this Agreement. 2.2.11 INSURANCE. Schedule 2.2.11 is a true, correct and complete list of all insurance policies and bonds in force in which Avtech is named as an insured party, as respects the business of Avtech, or for which Avtech has been charged or has paid any premiums. Except as disclosed in Schedule 2.2.11, all such policies or bonds are identical in terms, coverage and exclusions to the policies 6 expiring on or about February 18, 1998 as previously delivered to DAH; and are currently in full force and Avtech has not received any notice from any such insurer with respect to the cancellation of any such insurance. Avtech will continue all of such insurance in full force and effect up to and including the Closing Date. All premiums due and payable on such policies have been paid. Avtech is not a co-insurer under any term of any insurance policy. 2.2.12 BANK ACCOUNTS, DEPOSITORIES AND POWERS OF ATTORNEY. Schedule 2.2.12 is a true, correct and complete list of the names and locations of all banks or other depositories in which Avtech maintains accounts or safe deposit boxes, and the names of the persons authorized to draw thereon, borrow therefrom or have access thereto. No person or entity holds a power of attorney on behalf of Avtech. 2.2.13 REAL PROPERTY. Schedule 2.2.13 contains a complete and accurate legal description of each parcel of the Real Property. Except as set forth in Schedule 2.2.13, Avtech has no interests in real property. The Real Property constitutes all of the real property now used in and necessary for the conduct of the business of Avtech as presently conducted. Except as set forth on Schedule 2.2.13, all of the Real Property is held free and clear of all mortgages, pledges, liens, security interests, encumbrances and restrictions of any nature whatsoever. No consent is required by the terms of any agreement relating to Avtech's Real Property, from any person whatsoever, to effect the transactions contemplated hereby, such that as of immediately after the Closing Date all of the Real Property will be, free and clear of all mortgages, pledges, liens, security interest, encumbrances, restrictions and claims of any nature whatsoever (except to the extent listed on Schedule 2.2.13). Except as set forth in Schedule 2.2.13, all of the Real Property, and all real property, buildings and structures located thereon, is suitable for the purpose or purposes for which it is being used, and is in such condition and repair as to permit the continued operation of said businesses. None of the Real Property, buildings or structures is in need of material maintenance or repairs except for ordinary, routine maintenance and repairs. There are no material structural defects in the exterior walls or the interior bearing walls, the foundation or the roof of any plant, building, garage or other such structure owned, leased or used by Avtech and the electrical, plumbing and heating systems, and the air conditioning system, if any, of any such plant, building, garage or structure are in reasonable operating condition in light of their age and prior use. The utilities servicing the Real Property are adequate to permit the continued operation of the business of Avtech and there are no pending or threatened zoning, condemnation or eminent domain proceedings, building, utility or other moratoria, or injunctions or court orders which would materially affect such continued operation. Schedule 2.2.13 lists, and Avtech has furnished or made available to DAH, copies of all engineering, geologic and environmental reports prepared by or for Avtech with respect to the Real Property. 2.2.14 PERSONAL PROPERTY. Except as set forth in Schedule 2.2.14, and except with respect to personal property leased pursuant to the Personal Property Leases listed on Schedule 2.2.14, Avtech has good, valid and marketable title to all of its assets and properties which are Personal Property of every kind, nature and description, tangible or intangible and wherever located, including all property and assets which are personal property shown or reflected on the balance sheet included in the March 31, 1998 Delivered Financial Statements. The Personal Property constitutes all of the personal property now used in and necessary for the conduct of the business of Avtech as presently conducted, and is held free and clear of all mortgages, pledges, liens, security interests, encumbrances and restrictions of any nature whatsoever. Except as set forth in Schedule 2.2.14, no financing statement naming Avtech as debtor has been filed in any jurisdiction, and Avtech is not a party to or bound under any agreement or legal obligation authorizing any party to file any such financing statement. Schedule 2.2.14 contains a complete and accurate description of all machinery, equipment, tooling, parts, furniture, supplies and other tangible personal property having an individual value of $5,000 or more owned or used by Avtech. Schedule 2.2.14 contains a complete and accurate description of all automobiles, trucks and other vehicles owned or used by Avtech. Except as noted on Schedule 2.2.14 7 as unsuitable, all machinery and equipment and tangible personal property owned or used by Avtech and material to the operation of the business is suitable for the purpose or purposes for which it is being used, and is in such condition and repair as to permit the continued operation of said business. None of such machinery or equipment is in need of material maintenance or repairs except for ordinary, routine maintenance and repairs. 2.2.15 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.2.15, the operations of Avtech are in compliance with all occupational health and safety acts and all environmental laws and regulations of all federal, state and local governmental or regulatory bodies having jurisdiction over Avtech. Without limiting the generality of the foregoing, and by way of example only, except as set forth on Schedule 2.2.15: (a) There has not been, and is not occurring, any Release of any Hazardous Substance on any real property owned or used by Avtech. For purposes of this Agreement, the terms "Release" and "Hazardous Substance" shall have the same meanings as those terms are given in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except that for purposes of this Agreement petroleum (including crude oil or any fraction thereof) shall be deemed a Hazardous Substance. (b) Avtech has never sent a Hazardous Substance to a site which, pursuant to CERCLA or any similar state law, (A) has been placed, or is proposed to be placed, or, may in the future be placed, on the "National Priorities List" of hazardous waste sites or on any similar list of any federal, state or local governmental agency, including the Comprehensive Environmental Response, Compensation and Liability System list for potential hazardous waste sites, or (B) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (as defined under CERCLA) or to pay for any costs relating to such site. (c) Avtech has never been or is currently in violation of any provision of state or local laws or regulations applicable to the generation, processing, storage, remediation, or disposal of any Hazardous Substance or material similarly controlled or regulated by such laws. (d) Avtech is not involved in any suit or has received notice of any claim relating to personal injuries from exposure to Hazardous Substances or such other controlled or regulated materials. 2.2.16 BROKERS, FINDERS. Except as set forth on Schedule 2.2.16, the transactions contemplated herein were not submitted to Avtech by any broker or other person entitled to a commission or finder's fee thereon, and were not with the consent of Avtech submitted to DAH by any such broker or other person. Except as set forth on Schedule 2.2.16, neither Avtech nor any of its officers, directors or employees has engaged any broker or finder or incurred or taken any action which may give rise to any liability against itself or the Property for any brokerage fees, commissions, finders fees or similar fees or expenses and no broker or finder has acted directly or indirectly for Avtech in connection with this Agreement or the transactions contemplated hereby. No investment banking, financial advisory or similar fees have been incurred or are or will be payable by Avtech in connection with this Agreement or the transactions contemplated hereby; all amounts to be paid to Dain Rauscher Wessels will be paid by the Shareholders. 2.2.17 LEGAL PROCEEDINGS. ETC. Except as set forth on Schedule 2.2.17, there is no claim, litigation, action, suit or proceeding, administrative or judicial, filed, pending or, to the best knowledge of any of the Shareholders, threatened against Avtech or the Shareholders or involving the Property, this Agreement or the transactions contemplated hereby, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, including any unfair labor practice or grievance, proceedings or claim. To the best knowledge of the Principal Shareholders, there is no basis upon which such a claim, litigation, action, suit or proceeding could reasonably be brought or initiated. Except as set forth in Schedule 2.2.17, neither any of the 8 Shareholders nor Avtech is subject to any judgment, order or decree or any governmental restriction applicable to Avtech, or such Shareholders, which could reasonably be expected to have a Material Adverse Effect, or which materially adversely affects the ability of Avtech to conduct business in any area. 2.2.18 NO CONFLICT OR DEFAULT. Neither the execution and delivery of this Agreement or any other document or instrument to be executed pursuant to the terms hereof nor compliance with the terms and provisions hereof or thereof, including the consummation of the transactions contemplated hereby, will (a) violate in any material respect any statute, regulation or ordinance of any governmental authority, or (b) conflict with or result in the breach of any term, condition or provision of the articles of incorporation or bylaws of Avtech or of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument (with respect to the business of Avtech) to which Avtech or any of the Shareholders is a party or by which Avtech or any of the Shareholders or any part of the Property is or may be bound, or (c) constitute a material default (or an event which with the lapse of time or the giving of notice, or both, would constitute a material default) thereunder, or (d) result in the creation or imposition of any material lien, charge, encumbrance, or restriction of any nature whatsoever with respect to any part of the Property, or (e) give to others any interest or rights, including rights of termination, acceleration or cancellation in or with respect to any part of the Property or the business of or any ownership interest in Avtech. 2.2.19 LABOR RELATIONS. Schedule 2.2.19 sets forth all collective bargaining or other labor agreements to which Avtech is bound or which otherwise covers employees of Avtech; and the Shareholders have previously delivered to DAH true, correct and complete copies of each such agreement. There is no labor strike, dispute, slowdown or stoppage, or any union organizing campaign, or petition for certification actually pending or, to the best knowledge of the Principal Shareholders, threatened against or involving Avtech. Schedule 2.2.19 sets forth all pending grievances and arbitration proceedings against Avtech arising out of or under a collective bargaining or other labor agreement. No collective bargaining or other labor agreement is currently being negotiated by Avtech. Avtech has not experienced any work stoppage or other material labor difficulty over the past three years. No such agreement which is binding on Avtech restricts it from relocating or closing any or all of its operations. 2.2.20 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in Schedule 2.2.20, Avtech does not currently sponsor, maintain or contribute, or has within the past 3 years sponsored, maintained or contributed to, to any pension, retirement, profit-sharing, deferred compensation, bonus, stock option or other incentive plan, or any other employee benefit program, arrangement, agreement or understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such employee benefit plan is otherwise exempt from the provisions of ERISA, and whether or not formal or informal, written or oral, and whether or not legally binding. All such plans are fully funded through the date of this Agreement or amounts sufficient to fully fund contributions to such plans through the Closing Date are reserved for in the March 31, 1998 Delivered Financial Statements. All such plans, funds or programs sponsored, maintained or contributed to by Avtech currently or within the past 3 years, whether or not listed on Schedule 2.2.20, are hereinafter referred to as the "Employee Benefit Plans"). For the purpose of this Section 2.2.20, the term "Avtech" shall include all "affiliates" of Avtech, whether or not incorporated, as such term is used in Section 407(d)(7) of ERISA. (b) As of the Closing Date, neither Avtech nor any entity that may be regarded as under common control with Avtech pursuant to Section 414 of the Internal Revenue Code of 1986, as 9 amended (the "Code"), shall have incurred any material unsatisfied liability under Title IV of ERISA or Section 4980 of the Code, nor shall any such entity have become subject to a lien pursuant to Section 412(n) of the Code. (c) Full payment has been made of all material amounts which Avtech is required, under applicable law or under any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to which it is a party, to have paid as contributions to or benefits under any Employee Benefit Plan as of the date hereof. To the extent required by generally accepted accounting principles, Avtech has made adequate provision in the Delivered Financial Statements for liabilities to meet current contributions or benefit payments. (d) Avtech has performed all obligations required to be performed by it under the Employee Benefit Plans, except for such non-performance as would not result in a material liability to Avtech. Except as would not result in material liability to Avtech, Avtech has not engaged in any transaction with respect to the Employee Benefit Plans which would subject Avtech or DAH to a material tax, penalty or liability for a prohibited transaction under Section 406, 407 or 502(i) of ERISA or Section 4975 of the Code, nor have Avtech's directors, officers, partners, employees or agents, to the extent they or any of them are fiduciaries with respect to such Employee Benefit Plans, breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or, to the knowledge of the Principal Shareholders, taken any action or failed to take any action which would result in any claim being made under or by or on behalf of any such Employee Benefit Plans by any party with standing to make such claim. Avtech will not have any plan or commitment, whether formal or informal, written or oral, and whether or not legally binding, to modify or change any Employee Benefit Plan in any material manner prior to the Closing Date other than changes required to comply with applicable laws. Avtech and, to the knowledge of the Principal Shareholders, any "administrator(s)" (as described in Section 3(16)(A) of ERISA) of the Employee Benefits Plans have complied in all material respects with the applicable requirements of ERISA, the Code and all other statutes, orders, rules or regulations, specifically including material compliance with all reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA and of the Code in a timely and accurate manner, and no penalties have been or will be imposed, nor is Avtech, or, to the knowledge of the Principal Shareholders, any administrator liable for any penalties imposed, under ERISA, the Code or otherwise with respect to the Employee Benefit Plans or any related trusts of Avtech, except for such non-compliance and penalties as would not result in a material liability to Avtech. Avtech is not delinquent in the payment of any federal, state or local taxes with respect to the Employee Benefit Plans. There is no pending litigation, arbitration, or disputed claim, settlement adjudication or proceeding with respect to the Employee Benefit Plans, and the Principal Shareholders are not aware of any threatened litigation, arbitration or disputed claim, adjudication proceeding, or any governmental or other proceeding, or investigation with respect to the Employee Benefit Plans or with respect to any fiduciary or administrator thereof (in their capacities as such), or any party-in-interest within the meaning of Section 3(14) of ERISA thereto (with respect to their relationship as such). There is no "defined benefit plan" within the meaning of Section 414(j) of the Code or Section 3(35) of ERISA to which Avtech or any entity that may be regarded as under common control with Avtech pursuant to Code Section 414 has been a party or has been required to make any contributions at any time during the last six (6) years. There is no "multiemployer plan" within the meaning of Section 3(37) of ERISA to which Avtech or any entity that may be regarded as under common control with Avtech pursuant to Code Section 414 has been a party or has been required to make any contributions at any time during the last six (6) years. (e) The Shareholders have made available or caused to be made available as of the date of this Agreement to DAH true, accurate and complete copies of (A) all Employee Benefit Plans 10 and any related trust agreements, custodial agreements, investment management agreements, insurance contracts or policies, and administrative service contracts, all as in effect as of the date of this Agreement, together with all amendments thereto which will become effective at a later date; (B) the latest Summary Plan Description and any modifications thereto for each Employee Benefit Plan requiring same under ERISA; (C) each Form 5500 and/or Form 990 series filing (including required schedules and financial statements) for the last two fiscal years for each Employee Benefit Plan required to file such form; and (D) the most recent determination letter issued by the Internal Revenue Service with respect to any Employee Benefit Plan. None of Avtech or any officer, partner, employee, representative or agent of Avtech, has made any written or oral representations or statements to any current or former employees, dependents, participants or beneficiaries or other persons which are inconsistent in any material manner with the provisions of these documents. (f) With respect to any of Avtech's employee welfare plans (as defined in Section 3(1) of ERISA and including those Employee Benefit Plans which qualify as such) which are "group health plans" under Section 4980B of the Code and Section 607(1) of ERISA and related regulations (relating to the benefit continuation rights imposed by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), as amended to date), there has been timely compliance in all material respects with all requirements imposed thereunder, as and when applicable to such plans, so that Avtech has not incurred any (or will not incur any) material loss, assessment, penalty, loss of federal income tax deduction or other sanction, arising on account of or in respect of any failure to comply with any COBRA benefit continuation requirement, which is capable of being assessed or asserted directly or indirectly against Avtech or any of its subsidiaries with respect to any such plan. Avtech has no obligation to provide medical benefits to any former employee, except as required by applicable law, including, but not limited to, COBRA. (g) No Employee Benefit Plan maintained by Avtech which is a "welfare plan" within the meaning of Section 3(1) of ERISA provides benefits to employees after termination of employment, except as required by applicable law, including, but not limited to Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. (h) The trustee of the Avtech Corporation Employee Stock Ownership Trust (the "ESOT Trustee" or "ESOT") is not a Shareholder or director, officer or employee of Avtech and has no financial interest in the transaction contemplated by this Agreement. 2.2.21 CONTRACTS AND COMMITMENTS. Schedule 2.2.21 is a list of all contracts, agreements, contract rights, leases, license agreements, franchise rights and agreements, policies, purchase and sales orders, quotations and executory commitments, instruments, guaranties, indemnifications, arrangements, obligations and understandings (written or oral) to which Avtech is a party, all without any counterclaim set-off or defense and which involve the payment by or to Avtech in the individual amount of $50,000 or in the aggregate amount of $100,000 or more during any year, or are otherwise necessary to the operation of the business of Avtech as currently conducted (the "Material Contracts"). Each of the Material Contracts is valid and binding, in full force and effect and enforceable against Avtech in accordance with its respective provisions. Avtech has not assigned, mortgaged, pledged, encumbered, or otherwise hypothecated any of its right, title or interest under any Material Contract, or under any lease of personal property or real property to which Avtech is a party (herein, a "Lease") whether or not each Lease constitutes a Material Contract. A correct and complete copy of each Material Contract and Lease has previously been delivered to DAH. Avtech is not in violation of, in default in respect of, nor has there occurred an event or condition which, with the passage of time of giving of notice (or both) would constitute a violation or default of any Material Contract; and there are no facts or circumstances known to the Principal Shareholders which would reasonably indicate that Avtech (or any other party) will 11 be or may be in violation of or in default in respect of any Material Contract, subsequent to the date hereof. Without limiting the foregoing, no consents, authorizations, approvals or similar agreements or acquiescence is required from any party under any Material Contract or Lease to any of the transactions contemplated hereby, except to the extent listed on Schedule 3.1.9 hereof. No notice has been received by Avtech claiming any such default by Avtech or indicating the desire or intention of any other party thereto to amend, modify, rescind or terminate the same. 2.2.22 ACCOUNTS RECEIVABLE. All of the accounts and notes receivable, investments, deposits and prepaid expenses of Avtech as of March 31, 1998 are set forth on Schedule 2.2.22. All accounts receivable, arising between March 31, 1998 and the Closing Date (in each case net of allowances for doubtful accounts), (a) are or will be valid and subsisting, (b) represent or will represent sales actually made, (c) arose or will arise in the ordinary and usual course of the business of Avtech and (d) to the extent not collected prior to the Closing Date, will be collectible according to their terms on or before December 31, 1998, all without any counterclaim, set-off or defense. 2.2.23 INVENTORIES. Schedule 2.2.23 completely and accurately lists all raw materials, supplies, parts, work-in-process, and finished goods inventory and other inventory owned by Avtech and the accurate cost of such inventory as of March 31, 1998. Except as set forth in Schedule 2.2.23, and except for amounts which in the aggregate are not material, all such inventories (i) consist of a quality and quantity usable and saleable in the ordinary and usual course of business, except for items of obsolete materials and materials of substandard quality, all of which have been written off or written down on the books of Avtech to net realizable value prior to March 31, 1998 and (ii) have been priced at the lower of cost or market on a FIFO basis. The quantities of all material portions of each type of inventory (whether raw materials, work-in- process, or finished goods) are not excessive, but are reasonable and warranted in the present circumstances of Avtech; and all material portions of work-in-process and finished goods inventory is free of any material defect or other deficiency. 2.2.24 BACKLOG. All unfilled orders to purchase goods of Avtech as of March 31, 1998 are set forth in Schedule 2.2.24 and are firm and binding commitments (subject to cancellation rights set forth therein) of the respective purchasers assuming the purchasers have duly authorized such purchases. 2.2.25 BOOKS OF ACCOUNT: RECORDS. Except as disclosed in Schedule 2.2.25, the general ledgers, books of account and other financial records of Avtech are complete and correct, have been maintained in accordance with generally accepted accounting principles and practices and the matters contained therein are appropriately and accurately reflected in the Delivered Financial Statements in all material respects. 2.2.26 OFFICERS, PARTNERS. EMPLOYEES AND COMPENSATION. Schedule 2.2.26 lists (i) the GMT, (ii) the AMT, (iii) the "Key Employees" who, for purposes of this Agreement are Steve Froebe, Test Engineering Group Leader, Ron Feigal, Principal Engineer, Jeff Jorgensen, Staff Engineer and Bill Cuffel, Staff Engineer, and (iv) any Shareholder who is an employee of Avtech and not included in any of the above groups, together with the total salary, bonus payments, fringe benefits and perquisites each received in each of the 3 fiscal years ended September 30, 1997, changes to the foregoing which have occurred since September 30, 1997, and the professional background of each Key Employee for the last 5 years to the best of the knowledge of the Principal Shareholders. There are no other material forms of compensation paid by Avtech to any of the persons named in (i) through (iv) above. The provisions for wages and salaries accrued on the March 31, 1998 Balance Sheet are adequate for salaries and wages, including accrued vacation pay, for the period up through the date thereof, and Avtech has accrued on its books and records all obligations for wages and salaries and other compensation to its employees, including, 12 but not limited to, vacation pay and sick pay, and all commissions and other fees payable to agents, salesmen and representatives. Avtech has filed or will file any and all payroll tax returns due through the Closing Date and pay or reserve on the Closing Date Balance Sheet all payroll taxes due for any and all Avtech employees. Except as set forth on Schedule 2.2.26, Avtech has not become obligated, directly or indirectly, to any shareholder, director, officer or partner of Avtech or any member of their families, except for current liabilities for employment compensation or director's fees. Except as set forth on Schedule 2.2.26, no shareholder, director, officer, partner, agent or employee of Avtech holds any position or office with or has any financial interest, direct or indirect, in any supplier, customer or account of, or other outside business which has transactions with Avtech. Neither Avtech, nor any third party, has taken any action with respect to any shareholder, director, officer, partner, employee or representative of Avtech to attempt to induce or which would influence any such person not to become associated with DAH from and after the Closing Date or from serving DAH in a capacity similar to the capacity presently held. To the knowledge of the Principal Shareholders, no employee of Avtech has a present intention to leave the employ of Avtech or has taken any action directed towards leaving the employ of Avtech. Except as set forth on Schedule 2.2.26, to the knowledge of the Principal Shareholders, no former employee of Avtech is currently in or intends to enter into competition with the business of Avtech. 2.2.27 CREDIT TERMS: PRODUCT WARRANTIES. Adequate reserves have been made (and are reflected in the Delivered Financial Statements) for the aggregate amount of losses and expenses incurred by reason of allowances, customer dissatisfaction or liabilities arising under Avtech's warranties and guarantees during the three years ended September 30, 1997; and there has been no material adverse change in that experience since said date. Except as set forth on Schedule 2.2.27, (i) there have been no recalls of Avtech product, (ii) to the best knowledge of the Principal Shareholders, there is no Avtech product which is either defective or likely to experience a failure rate materially greater than the average for Avtech's products over the three year period ended September 30, 1997, and (iii) Avtech has conducted all qualification inspections and quality conformance inspections required by the specifications for products of Avtech included on qualified products lists in material compliance with the requirements of such specifications, and all products shipped have been in material conformance with such specifications. Except as set forth and explained on Schedule 2.2.27, there have been no material departures from the standard terms and conditions of credit, discounts and warranties given by Avtech to its customers; and all of such standard terms and conditions are set forth on such schedule. 2.2.28 CONTRACTS WITH AFFILIATES. Any contract, commitment, lease, permit or other instrument, agreement, understanding or obligation (each a "Commitment") between Avtech and any affiliate (including each Shareholder), is the equivalent of an "arms-length" transaction with a third party, and each such Commitment is described on Schedule 2.2.28 hereto. 2.2.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule 2.2.29, Avtech is not a party to, nor is it bound by, nor does it have any liability with respect to, any Government Contracts and has not submitted any bid with respect thereto, which has not expired. For purposes of this Section 2.2.29, the term "Government" means any agency, division, subdivision, audit group, or procuring office of the federal government, including the employees or agents thereof; the term "Transferor" means Avtech and its subsidiaries, divisions, affiliates, joint venturers, agents, employees, officers and directors; the term "Government Contract" means any prime contract, subcontract, basic ordering agreement, letter contract, purchase order or delivery order of any kind, including all amendments, modifications and options thereunder or relating thereto, between Transferor and any of a Government, any prime contractor of a Government, any subcontractor of such a prime contractor or any subcontractor of another subcontractor, however far removed from the prime contractor such subcontractor may be, (A) currently in force; 13 (B) which, within the three years preceding the date of this Agreement, expired or were terminated; or (C) for which final payment was received within the three years preceding the date of this Agreement; and the term "Bid" means any outstanding quotation, bid or proposal submitted by Transferor to a Government, any proposed prime contractor of a Government, or any proposed subcontractor. 2.2.30 EXCLUSIVE SELLING ARRANGEMENTS; STRATEGIC ALLIANCES. Except as disclosed in Schedule 2.2.30, (i) Avtech has entered into no exclusive selling arrangements, and (ii) no agreement or understanding has been entered into, proposed, or regardless of commencement date, is in force between Avtech and any company which is an arrangement with any other person which involves equity investment or ownership, a joint venture or revenue or profit sharing (herein, a "Strategic Alliance"). An arrangement for a preferred supplier relationship which does not have any of the characteristics described in the foregoing sentence is not a Strategic Alliance. No Strategic Alliances have been terminated by Avtech since April 1, 1998. 2.2.31 PAYMENTS AND EXPENDITURES. Except as set forth in Schedule 2.2.31 since March 31, 1998, Avtech has not (i) made any payment or incurred any liability on behalf of any Shareholder, (ii) made any payment to or on behalf of any Shareholder except for the Shareholder's salary and expense reimbursements made in the ordinary course of business, or (iii) paid any amount not in the ordinary course of Avtech's business. 2.2.32 NEW COMPETITIVE PRODUCTS, PRICING, TECHNOLOGICAL DEVELOPMENTS, COMPETITION. Except as disclosed in Schedule 2.2.32, to the best knowledge of the Principal Shareholders, there are no (i) products introduced by others since October 1, 1997 which are competitive with the products of Avtech, (ii) material reductions in the prices of products of products competitive with the products of Avtech, (iii) technological developments announced which would make any of Avtech's products obsolete or (iv) entries by any new competitor into Avtech's markets, in each case other than as described in the Confidential Information Memorandum dated March, 1998 previously delivered to DAH (the "Information Memorandum"). 2.2.33 KEY EMPLOYEES. Except as disclosed in Schedule 2.2.26, since March 31, 1998 no Key Employees have terminated employment with Avtech and no Key Employees have given notice to Avtech or to any Principal Shareholder of termination. The Principal Shareholders anticipate that all Key Employees will continue employment with Avtech after the Closing Date. 2.2.34 COMPLETE DISCLOSURE. No representation or warranty made by Avtech or any of the Shareholders in this Agreement, and no exhibit, schedule or certificate furnished to DAH by or on behalf of Avtech or any of the Shareholders pursuant to this Agreement or in connection with the transactions contemplated hereby or thereby, including the Confidential Informational Memorandum, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein not misleading. 3. COVENANTS. 3.1 COVENANTS OF THE SHAREHOLDERS. 3.1.1 COVENANT AGAINST DISCLOSURE. Other than in the ordinary course of business of Avtech and except for professional advisors (including attorneys, accountants and investment bankers) who agree to maintain the confidentiality of such information, each of the Shareholders agree not to (a) disclose to any person, association, firm, corporation or other entity (other than DAH or those designated in writing by DAH) in any manner, directly or indirectly, any information or data relevant to the business of Avtech, whether of a technical or commercial nature, or (b) use, permit or assist, by acquiescence or otherwise, any person, association, firm, corporation or other entity (other than DAH or those designated in writing by DAH) to use, in 14 any manner, directly or indirectly, any such information or data, excepting only use of such data or information as is at the time generally known to the public and which did not become generally known through any breach of any provision of this Section 4.2.2. 3.1.2 [Intentionally Deleted]. 3.1.3 INJUNCTIVE RELIEF. Each of the Principal Shareholders acknowledges and agrees that DAH's remedy at law for any breach of any of such Shareholders' obligations under Subsections 3.1.1 and 3.1.2 hereof would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in a proceeding which may be brought to enforce any such provision without the necessity of proof of actual damage. The rights and remedies conferred upon DAH under this Section, or by any instrument or law, shall be cumulative and may be exercised singularly or concurrently. 3.1.4 CONDUCT OF BUSINESS OF AVTECH PRIOR TO CLOSING DATE. Each of the Principal Shareholders agrees that on and after the date hereof and prior to the Closing Date: (a) The business and operations, activities and practices of Avtech shall be conducted only in the ordinary course of business and consistent with past practice; (b) No change shall be made in the articles of incorporation or bylaws of Avtech; (c) No change shall be made in the number of shares of authorized or issued capital stock of Avtech, nor shall any option, warrant, call, right, commitment or agreement of any character be granted or made by Avtech relating to its equity; except that all of the outstanding options shall be exercised on or prior to the Closing Date as and in the amounts set forth in Schedule 2.2.2; (d) No dividend shall be declared or paid or other distribution (whether in cash, stock, property or any combination thereof) or payment declared or made in respect of the Avtech Common Shares by Avtech, nor shall Avtech purchase, acquire, redeem or split, combine or reclassify any shares of the capital stock of Avtech; (e) The Principal Shareholders shall not, directly or indirectly, solicit or encourage (including by way of furnishing any non-public information concerning the business, properties or assets of Avtech), or enter into any negotiations or discussions concerning, any Acquisition Proposal (as defined below). Any Shareholder will notify DAH promptly by telephone, and thereafter promptly confirm in writing, if any such information is requested from, or any Acquisition Proposal is, to the knowledge of such Shareholder, received by Avtech, Dain Rauscher Wessels or such Shareholder. As used in this Agreement, "Acquisition Proposal" shall mean any proposal received by Avtech or any Principal Shareholder prior to the Closing Date for a merger or other business combination involving Avtech or for the acquisition of, or the acquisition of a substantial equity interest in, or a substantial portion of the assets of Avtech, other than the one contemplated by this Agreement. (f) Except as set forth in Schedule 3.1.4(f), the Principal Shareholders will not permit Avtech to: (A) incur, become subject to, or suffer, or agree to incur, become subject to or suffer, any obligation or liability (absolute or contingent) except current liabilities incurred, and obligations entered into in the ordinary course of business; (B) discharge or satisfy any lien or encumbrance or pay any obligation or liability (absolute or contingent) other than liabilities payable in the ordinary course of business; (C) mortgage, pledge or subject to lien, charge or any other encumbrance any of the Property or agree so to do; 15 (D) sell or transfer or agree to sell or transfer any of its assets, or cancel or agree to cancel any debt or claim, except in each case in the ordinary course of business; (E) consent or agree to a waiver of any right of substantial value; (F) enter into any transaction other than in the ordinary course of its business; (G) increase the rate of compensation payable or to become payable by it to any Key Employee over the rate being paid to such Key Employee at March 31, 1998; (H) terminate any Material Contract, any Lease or any Permit; (I) through negotiation or otherwise, make any commitment or incur any liability or obligation of a material nature to any labor organization; (J) make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Restricted Employee; (K) make or agree to make any accrual or arrangement for or payment of bonuses or special compensation of any kind to any Non-Restricted Employee, other than in the ordinary course of business and in accordance with Avtech's practice; (L) directly or indirectly pay or make a commitment to pay any severance or termination pay to any Key Employee; (M) directly or indirectly pay or make a commitment to pay any severance or termination pay to any Non-Restricted Employee, other than in the ordinary course of business and in accordance with Avtech's past practice; (N) introduce any new method of management, operation or accounting with respect to its business or any of the assets, properties or rights applicable thereto, other than changes required by GAAP; (O) offer or extend more favorable credit terms, discounts or allowances than were offered or extended regularly on and prior to March 31, 1998, other than in the ordinary course of business and in accordance with Avtech's past practice; (P) make capital expenditures in excess of $100,000 in the aggregate, or make any commitments for such capital expenditures; (Q) Enter into any Strategic Alliance; or (R) Make any material change in the prices, discounts or allowances for any Avtech product. (g) Each of the Principal Shareholders will use their respective reasonable efforts to preserve Avtech's business organization materially intact, to keep available to Avtech the present service of Avtech's employees; and to preserve for Avtech the good will of its suppliers, customers and others with whom business relationships exist; (h) In light of the provisions of clause (i) of Section 1.2.3, the Principal Shareholders will take all necessary actions to assure that (i) Avtech does not accelerate the conversion of other assets to Cash and (ii) Avtech timely pays all of its obligations; and (i) None of the Principal Shareholders will take, agree to take or permit to be taken any action or do or permit to be done, anything in the conduct of the business of Avtech, or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement or which would cause any of the representations or warranties of the Shareholders contained herein to be or become untrue in any material respect. 16 3.1.5 INSPECTION OF BOOKS AND RECORDS. From the date of this Agreement until the Closing Date, the Principal Shareholders shall cause Avtech to make available to DAH for examination the Property and all corporate records, minute books, share records, treasury shares, tax returns, books of account, contract, agreements, commitments, records and its documents of every character relating to Avtech and its business and shall permit DAH and its representatives, attorneys, accountants and agents to have access to and to copy, at DAH's expense, the same at all reasonable times, so as to allow DAH to confirm compliance with covenants and satisfaction of conditions hereunder. 3.1.6 FURTHER ASSURANCES. On and after the Closing Date, the Shareholders shall prepare, execute and deliver, at DAH's expense, such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action as DAH shall reasonably request at any time or from time to time in order to perfect, confirm or evidence in DAH title to all or any part of the Stock or to consummate, in any other manner, the terms and conditions of this Agreement. 3.1.7 PRESS RELEASES AND ANNOUNCEMENTS. DAH and the Principal Shareholders shall not and the Principal Shareholders shall cause Avtech not to issue any press release or announcement relating to the subject matter of this Agreement without the prior written approval of the other parties hereto; PROVIDED, HOWEVER, that DAH may make any public disclosure it believes in good faith is required by law (in which case he or it will advise the other parties hereto prior to making the disclosure). 3.1.8 BANKRUPTCY. No Principal Shareholder shall (i) cause Avtech to commence any case, proceeding or other action (a) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to either of them or seeking to adjudicate either of them bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to either of them or for all of any substantial part of either of their assets, or (b) make a general assignment for the benefit of its creditors; (ii) commence any case, proceeding or other action of a nature referred to in clause (i)(a) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or discharged for a period of 60 days; (iii) commence any case, proceeding or other action seeking issuance of a warrant of attachment, execution distraint or similar process against all or any substantial part of either of their respective assets which results in the entry of an order for any such relief; and (iv) neither Avtech nor any Shareholder shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above. 3.1.9 CONSENTS, ETC The Shareholders shall obtain, in form and substance reasonably satisfactory to DAH, an effective executed consent from each person from which consent is required as disclosed in Schedule 3.1.9. 3.1.10 CLOSING DATE BALANCE SHEET. The Shareholders will cause a balance sheet as of the Closing Date to be delivered to DAH within a reasonable time after the Closing Date (the "Closing Date Balance Sheet") which shall be true, correct and complete; shall have been prepared from and in accordance with the books and records of Avtech in conformance with generally accepted accounting principles applied on a consistent basis using an accrual basis method and in compliance with Regulation S-X and audited by an independent accounting firm reasonably acceptable to DAH; and shall fairly present the financial condition of Avtech as of the date stated on such Closing Date Balance Sheet in accordance with such practices. 3.1.11 RELEASE. Each Shareholder does hereby release and discharge Avtech and its officers, directors and agents (the "Releasees") from any and all claims, demands and causes of 17 action which such Shareholder has against any of the Releasees arising from their status as a Shareholder. This release applies to any and all such claims, demands or causes of action, whether known or unknown, contingent or matured. The release granted in this Section 3.1.11 shall become effective concurrent with the Closing. If the transaction contemplated by this Agreement does not close, this release shall be null and void. 3.2 COVENANTS OF DAH. DAH covenants that: 3.2.1 LEGAL OPINION. On or prior to the Closing Date, it shall deliver to the Shareholders, duly and properly executed, the legal opinion referred to in Section 5.2.1. 3.2.2 PAYMENTS. On or prior to the Closing Date, DAH shall make the payments to be made pursuant to Section 1.2.1 and Section 1.2.2. 3.2.3 FURTHER ASSURANCES. On and after the Closing Date, DAH shall prepare, execute and deliver, at its expense, such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action as the Principal Shareholders shall reasonably request at any time or from time to time in order to perfect, confirm or evidence in DAH title to all or any part of the Stock or to consummate, in any other manner, the terms and conditions of this Agreement. 3.2.4 CONFIDENTIALITY AGREEMENTS. Between the date of this Agreement and the Closing Date, DAH shall continue to be bound by its obligations pursuant to the written confidentiality agreements to which DAH and Avtech are parties. Nothing contained in this Section 3.2.4 shall be interpreted to seek to prohibit DAH from any required public disclosure. 3.2.5 Promptly following the Closing, DAH shall take all necessary action to terminate the ESOT and shall distribute its assets as soon as practicable following receipt of a favorable determination letter from the Internal Revenue Service with respect to the termination of ESOT. 4. INDEMNIFICATION. 4.1 To the extent of the amount deposited with the Escrow Agent pursuant to Section 1.2.2, the Shareholders hereby indemnify and hold DAH harmless from any and all claim, loss, damage or expense (including reasonable attorneys' fees) as a result of any breach of any warranty or representation made in Sections 2.2.4, 2.2.6, 2.2.7, 2 2.8(b), 2.2.15, 2.2.17 or 2.2.27 of this Agreement by the Shareholders. 4.2 In the event of any breach of any obligation by any of the Shareholders to DAH based on intentional misrepresentation, concealment or wilful or wanton disregard of the facts, there shall be no limitation of dollar amount and such claim for intentional misrepresentation, concealment or wilful or wanton disregard of the facts shall be with full recourse against such Shareholder for the full amount of such claim. 4.3 Any claim for indemnification under this Section 4 must be asserted prior to April 1, 1999. 5. CONDITIONS PRECEDENT TO OBLIGATIONS. 5.1 CONDITIONS TO OBLIGATIONS OF DAH. Each and every obligation of DAH to be performed at the Closing Date shall be subject to the satisfaction as of or before the Closing Date of the following conditions (unless waived in writing by DAH): 5.1.1 CONSENTS. Avtech shall have obtained and delivered to DAH each of the consents required by Section 3.1.9. 5.1.2 CERTIFICATE. A certificate executed by each of the Principal Shareholders favorably evidencing as of the Closing Date (a) the accuracy of the representations and warranties of the 18 Shareholders set forth in this Agreement, (b) the compliance with the covenants of the Shareholders set forth in this Agreement, and (c) the absence of any material adverse change in the financial condition, operations, business or prospects taken as a whole of Avtech from that set forth in the March 31, 1998 Delivered Financial Statements. 5.1.3 OPINION OF COUNSEL. The Shareholders shall have delivered or caused to be delivered to DAH an opinion of counsel for the Shareholders, addressed to DAH and dated the Closing Date, in the form of Exhibit 5.1.3 attached hereto. 5.1.4 DELIVERY OF CERTAIN AGREEMENTS BY SHAREHOLDERS. The persons listed on Exhibit 5.1.4 shall have executed and delivered Employment Agreements to DAH in the form of Exhibit 5.1.4 attached hereto. The Shareholders shall have delivered the Escrow Agreement. Robert Hancock shall have delivered a Termination of Employment Agreement in the form of Exhibit 5.1.4. 5.1.5 DELIVERY OF STOCK AND RECEIPT OF PAYMENT. The Shareholders shall deliver the stock certificates representing not less than 90% of the outstanding Stock of Avtech duly endorsed for transfer by assignments separate from certificates, endorsed in blank with signatures guaranteed by a national bank or member firm of the New York Stock Exchange. 5.1.6 HART-SCOTT-RODINO. Prior to the Closing, (i) Avtech and the Shareholders shall each have timely made all filings, submissions and responses which are required of them, or are in DAH's reasonable judgment desirable, in connection with the transactions contemplated herein pursuant to the Hart-Scott-Rodino Act, and (ii) all waiting periods applicable under such Act shall have been terminated. Avtech and each of the Shareholders covenant to timely make all such filings, submissions and responses, and upon DAH's request if it so elects, to join in any request for early termination of such waiting periods. 5.1.7 AUDITED FINANCIAL STATEMENTS. The Shareholders shall have delivered the Audited Financial Statements. 5.1.8 TITLE INSURANCE. At or prior to the Closing Date, the Shareholders shall deliver to DAH one or more ALTA owner's policies of title insurance, including such endorsements (including survey, address, non-encroachment, ingress and zoning endorsements) as DAH may reasonably request, insuring Avtech's title to all of the Real Property subject only to such exceptions as (a) do not impair the use by Avtech of such property in the ordinary course of its business as now conducted, and (b) are otherwise reasonably acceptable to DAH, and in the amount for each parcel of the current fair market value of such parcel as established by the December, 1998 appraisal of the Real Property previously delivered to DAH. 5.1.9 TRANSITION DOCUMENTATION. Executed originals, in form and substance reasonably satisfactory to DAH, of (a) signature cards for each deposit or similar account listed in Schedule 2.2.12, listing such parties as DAH may direct, (b) the original corporate minute book of Avtech, and (c) the resignation of each of the members of the Board of Directors of Avtech effective as of the Closing Date. 5.1.10 HEALTH CARE PLAN. On or prior to the Closing and effective July 1, 1998, Avtech shall have made arrangements to provide an insured medical plan to its employees with benefits substantially similar to Avtech's existing self-insured medical plan. 5.2 CONDITIONS TO OBLIGATIONS OF AVTECH AND THE SHAREHOLDERS. Each and every obligation of the Shareholders, to be performed on or before the Closing Date shall be subject to the satisfaction as of or before such time of the following conditions (unless waived in writing by the Shareholders). 5.2.1 OPINION OF COUNSEL. DAH shall have delivered or caused to be delivered to the Shareholders an opinion of counsel for DAH, addressed to the Shareholders and dated the Closing Date, in form of Exhibit 5.2.1 attached hereto. 19 5.2.2 PAYMENT. DAH shall have made the payments required pursuant to Section 1.2.1 and 1.2.2. 5.2.3 HART SCOTT RODINO. Prior to the Closing Date, (i) DAH shall have timely made all filings, submissions and responses which it is required to make, or in DAH's reasonable judgment are desirable, in connection with the transactions contemplated herein pursuant to the Hart-Scott-Rodino Act, and (ii) all waiting periods applicable under such Act shall have been terminated. 5.2.4 ESOT MATTERS. The ESOT Trustee shall be independent of all other parties to this Agreement and shall have relied, in making its decision whether to enter into this Agreement on behalf of the ESOT, on the written report of an appraiser who is qualified to value the Stock and is unrelated to Avtech or any of the parties to this Agreement. The appraiser's report will be delivered in draft not less than one week prior to the Closing Date and shall be issued and delivered on the Closing Date, and which will set forth the appraiser's qualifications, its determination of the value of the Stock as of the Closing Date and the factors and methodologies used by the appraiser in making the appraisal. For purposes of this Section, the Trustee shall be considered independent of all other parties to this Agreement if it is a bank, within the meaning of Code Section 581, which is not: (1) directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with any of the other parties to this Agreement; (2) a partner or employer of any such party; or (3) a corporation or partnership of which any such party is an officer, director or partner. 5.2.5 FAIRNESS OPINION. The ESOT Trustee shall have received, in a form acceptable to the ESOT Trustee, the opinion of the financial advisor to the ESOT that: (a) The ESOT is receiving "adequate consideration" (as that term is defined in the ERISA) for the shares transferred to DAH under the terms of the "Agreement"; and (b) The terms of the transaction described in the Agreement, the Escrow Agreement and Joint Instructions are fair to the ESOT from a financial point of view. A full report of the financial advisor's opinion shall be delivered as of the Closing Date (or as soon as before such Closing Date as practical). Such report shall document the factors and methodology utilized by the financial advisor in rendering the opinion. The report shall also set forth the financial advisor's qualifications to render such an opinion of value and fairness. 6. MISCELLANEOUS PROVISIONS. 6.1 NOTICE. All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made, if in writing, and (i) if served by personal delivery to the party for whom intended (which shall include overnight delivery by Federal Express or similar service), (ii) or 3 business days after being deposited, postage prepaid, certified or registered mail, return receipt requested, in the United States mail bearing the address shown in this Agreement for, or such other address as may be designated by writing hereafter by, such party, or (iii) if sent by telecopy to the number showing in this Agreement for, or such other number as may be designated in writing hereafter by, such party and immediately confirmed by sending a copy of such notice by either method described in clause (i) or (ii) above. 20 If to Shareholders: Robert Hancock Avtech Corporation 3400 Wallingford Avenue North Seattle, WA 98103-9095 Telephone: (206) 634-2540 Fax: (206) 634-3011 with copies to: Perkins Coie 1201 Third Avenue, 40th Floor Seattle, Washington 98101 Attention: Stephen M. Graham Telephone: (206) 583-8888 Fax: (206) 583-8500 If to DAH: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, California 90245 Telephone: (310) 725-9123 Fax: (310) 643-0746 and a copy to: Spolin & Silverman 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 Attention: Stephen A. Silverman Telephone: (310) 576-1221 Fax Number: (310) 576-4844 6.2 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, and the documents referred to herein and therein embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, relative to said subject matter. 6.3 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and obligations arising hereunder shall inure to the benefit of and be binding upon Avtech, its DAH, its successors and permitted assigns, and the Shareholders, their heirs, legal representative and permitted assigns. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party or parties except that DAH shall have the right to (i) assign, in whole or in part, its rights hereunder to one or more affiliates of DAH, which in each case shall be a wholly-owned subsidiary of DAH and (ii) make a collateral assignment of its rights hereunder to the lenders under its senior credit facility to secure its obligations thereunder. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 6.4 CAPTIONS. This Agreement and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 6.5 WAIVER; CONSENT. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed 21 by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any condition of this Agreement or breach by the other party of any of its obligations or representations hereunder or thereunder shall be deemed to be a waiver of any other condition or subsequent or prior breach of the same or any other obligation or representation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. 6.6 NO THIRD PARTY BENEFICIARIES. Nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto, any rights, remedies or other benefits under or by reason of this Agreement. 6.7 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. The signature page of this Agreement when transmitted by facsimile shall be effective execution and delivery of this Agreement. 6.8 GENDER. Whenever the context requires, words used in the singular shall be construed to mean or include the plural and vie versa, and pronouns of any gender shall be deemed to include and designate the masculine, feminine or neuter gender. 6.9 GOVERNING LAW. This Agreement shall in all respects be constructed in accordance with and governed by the laws of the State of Delaware. Any and all disputes arising under or in connection with this Agreement or the transactions contemplated hereby shall be resolved by binding arbitration before JAMS/Endispute, which arbitration shall be conducted in Seattle, Washington in accordance with the rules of JAMS/Endispute. 6.10 TRANSACTION EXPENSES. All of the expenses of the Shareholders incurred in connection with the transactions contemplated by this Agreement, including but not limited to the fees of counsel, investment bankers, title insurance premiums, other investment advisors, accountants (including audit fees relating to the Audited Financial Statements and the Closing Date Balance Sheet) and consultants (collectively, the "Shareholder Closing Expenses"), shall be paid for by the Shareholders. None of the Shareholder Closing Expenses shall be accrued or paid by Avtech or DAH. The Principal Shareholders represent and warrant that all of the persons engaged in connection with the transactions contemplated hereby, to whom Shareholder Closing Expenses may be payable, have no recourse to Avtech, and that adequate provision has been made for the payment of all unpaid amounts by the Paying Agent or the Escrow Agent pursuant to Section 1.2.3 hereof. 6.11 CLOSING DATE. The date on which the transaction shall close (the "Closing Date") shall be June 26, 1998 unless the conditions in Sections 5.1.6 and 5.1.7 have not been completed, in which case, the Closing shall be 3 business days following the completion of each of the conditions specified in Sections 5.1.6 and 5.1.7; PROVIDED, HOWEVER, that (i) each of the parties hereto shall use its best efforts to satisfy each of the conditions precedent to the Closing Date which is satisfied by the delivery of documents (other than those to be dated on the Closing Date) no later than June 24, 1998; and (ii) nothing in this language waives any of the other closing conditions specified in Section 5. 7. TERMINATION. This Agreement may be terminated by the parties and the contemplated transactions abandoned at any time prior to closing, as follows: (a) By the written consent of DAH and Shareholders holding a majority of the Avtech Common Shares; 22 (b) By either DAH or Shareholders holding a majority of the Avtech Common Shares, upon written notice of all other parties of this Agreement, at any time after July 31, 1998, if the Closing Date shall not have occurred by such date; PROVIDED, HOWEVER, that the right to terminate this Agreement under this paragraph (b) shall not be available to any party which has intentionally breached this Agreement or whose failure to comply with its covenants and agreements set forth in this Agreement shall have been the primary cause of the closing not occurring. DECRANE AIRCRAFT HOLDINGS, INC. ----------------------------------------------- By: Avtech Corporation Employees Stock Ownership Trust ----------------------------------------------- By: Its Trustee ----------------------------------------------- Name ----------------------------------------------- Title ----------------------------------------------- John D. Gibson ----------------------------------------------- Audrey Hancock ----------------------------------------------- David L. Hancock ----------------------------------------------- Robert L. Hancock Leland Stanford Jr. University Robert Hancock UNITRUST ----------------------------------------------- By: Its Trustee ----------------------------------------------- Name ----------------------------------------------- Jeff Smith ----------------------------------------------- Gene Zipp 23 SCHEDULE A "SHAREHOLDERS"
NAME NUMBER OF SHARES - ---------------------------------------------------------- ---------------------------------- **Avtech Corporation Employees Stock Ownership Trust...... 163,988.30 ** John D. Gibson......................................... 257.40 plus 20,000 options ** Robert L. Hancock...................................... 134,812.60 plus 90,000 options ** Jeff Smith............................................. 20,000 options ** Gene Zipp.............................................. 20,000 options Audrey Hancock............................................ 1,500 David L. Hancock.......................................... 33.70 Leland Stanford Jr. University Robert Hancock UNITRUST.... 10,000
- ------------------------ ** Designates Principal Shareholder 24 SCHEDULE B TO STOCK PURCHASE AND SALE AGREEMENT DEFINITIONS
"Agreement"...................................................................... Preamble "Avtech"......................................................................... Preamble "Avtech Common Shares"........................................................... 2.2.2 "Audited Financial Statements"................................................... 2.2.4 "Bid"............................................................................ 2.2.29 "Closing Date"................................................................... 6.11 "Closing Date Balance Sheet"..................................................... 3.1.11 "CERCLA"......................................................................... 2.2.15 "COBRA".......................................................................... 2.2.20 "Commitment"..................................................................... 2.2.28 "DAH"............................................................................ Preamble "Delivered Financial Statements"................................................. 2.2.4 "Employee Benefit Plan".......................................................... 2.2.20 "ERISA".......................................................................... 2.2.20 "Escrow Agent"................................................................... 1.2.2 "Escrow Agreement"............................................................... 1.2.2 "ESOT"........................................................................... 2.2.20 "ESOT Trustee"................................................................... 2.2.20 "Financial Statements"........................................................... 2.2.4 "Government Contract"............................................................ 2.2.29 "Government"..................................................................... 2.2.29 "Hazardous Substance"............................................................ 2.2.15 "Material Adverse Effect"........................................................ 2.2.5 "Non-Restricted Employees"....................................................... 2.2.5 "Paying Agent"................................................................... 1.2.1 "Permits"........................................................................ 2.2.8 "Principal Shareholders"......................................................... Preamble "Real Property".................................................................. 2.2.13 "Real Property Leases"........................................................... 2.2.13 "Release"........................................................................ 2.2.15 "Restricted Employee"............................................................ 2.2.5 "Shareholders"................................................................... Preamble "Shareholder Closing Expenses"................................................... 6.10 "Strategic Alliances"............................................................ 2.2.31 "Transferor"..................................................................... 2.2.29
25 EX-2.2 3 ASSET PURCHASE AND SALE AGREEMENT EXHIBIT 2.2 ASSET PURCHASE AND SALE AGREEMENT This Asset Purchase and Sale Agreement ("Agreement") is made and entered into as of June 12 1998, by and among DeCrane Aircraft Holdings, Inc., a Delaware corporation ("DAH") and DAHX Acquisitions, Inc., a Delaware corporation ("Buyer") on the one hand, and Dettmers Industries, Inc., a Delaware corporation ("Dettmers"), Peter Dettmers, an individual, and Andrew Perl, an individual (Mr. Dettmers and Mr. Perl are collectively referred to herein as either the "Dettmers Shareholders" or "Senior Management") on the other hand, based on the following facts: DAH desires to cause Buyer, a wholly owned subsidiary of DAH organized for the purpose, to purchase, and Dettmers wishes to sell, substantially all of the assets of Dettmers (with the specific exclusions set forth herein) on the terms and conditions set forth herein; and DAH desires to employ certain senior officers of Dettmers specified herein on the terms and conditions set forth in the form of Employment Agreement attached as EXHIBIT A hereto (the "Employment Agreements" and, together with this Agreement and all other agreements and instruments executed and delivered by one or more parties hereto in connection herewith, the "Transaction Documents"). Based on the foregoing facts and circumstances, the parties hereby agree as follows: 1. ASSETS TO BE PURCHASED AND SOLD. 1.1 THE DETTMERS ASSETS. On the Closing Date, Dettmers shall transfer to Buyer all of the assets, properties, rights (contractual or otherwise) and business of Dettmers (including but not limited to the goodwill of Dettmers), whether such assets and business is in the nature of real, personal, or mixed property and whether such assets are tangible or intangible or known or unknown (collectively referred to herein as the "Assets" or the "Property"). Without limiting the generality of the foregoing, the assets to be transferred include: 1.1.1 REAL PROPERTY. Any and all real property (the "Owned Real Property"), including that listed on Schedule 1.1.1; 1.1.2 REAL PROPERTY LEASES. Any and all rights under leases of real property and improvements (the "Real Property Leases"), including that listed on Schedule 1.1.2 (and all of the real property subject to the Real Property Leases is referred to herein as the "Leased Real Property", and together with the Owned Real Property, as the "Real Property"); 1.1.3 PERSONAL PROPERTY. (a) All machinery and equipment (the "Machinery and Equipment") including that listed on Schedule 1.1.3; (b) All tooling (the "Tooling"), including that listed on Schedule 1.1.3(b); (c) All parts and furniture ("Parts and Furniture"); and (d) All rights under leases of equipment, vehicles or other tangible personal property (the "Personal Property Leases"), including that listed on Schedule 1.1.3(d), (and all of the personal property subject to the Personal Property Leases is referred to herein as the "Leased Personal Property"); All of the Machinery and Equipment, Tooling, Parts and Furniture, and Leased Personal Property are referred to collectively herein as "Personal Property." 1.1.4 VEHICLES. All automobiles and other motor vehicles (the "Vehicles"), including, without limitation, those listed on Schedule 1.1.4. 1 1.1.5 APPROVALS. All licenses, permits, consents, authorizations, approvals, certificates and franchises of any regulatory, administrative or other government agency (all of which items are referred to as "Approvals"), including those matters listed in Schedule 1.1.5. 1.1.6 PROPRIETARY RIGHTS. (a) All patents, inventions, trademarks, names, service marks, trade names, copyrights, marks, symbols, logos, franchises and permits, and all applications therefor, registrations thereof and licenses, sublicenses or agreements in respect thereof, which Dettmers owns or uses or has used or has the right to use or to which it is a party, and any filing or registration thereof with any federal, state local or regulatory authority (the "Protectable Proprietary Rights"), including those listed on Schedule 1.1.6(a)). (b) All trade secrets, processes, proprietary knowledge, know-how, and other processes which are not filed or registered but which constitute the confidential proprietary information of Dettmers which Dettmers uses or has used, or has the right to use (the "Confidential Proprietary Rights"). 1.1.7 CONTRACTS. All rights under contracts and agreements (other than those described in other sections of this Section 1.1) and specifically including, but not limited to purchase and sales orders, quotations, executory commitments, instruments, guaranties, indemnifications, arrangements or other understandings of Dettmers (the "Contracts"), including, without limitation, those matters listed on Schedule 1.1.7. 1.1.8 RECEIVABLES. All accounts and notes receivable (the "Receivables"), including those listed on Schedule 1.1.8. 1.1.9 DEPOSITS AND PREPAID EXPENSES. All of the deposits and prepaid expenses of Dettmers which relate to or are used in the business of Dettmers, including without limitation those deposits and prepaid expenses listed on Schedule 1.1.9 (all of which deposits and prepaid expenses are referred to as "Deposits" and "Prepaid Expenses"). 1.1.10 INVENTORY. All raw materials, supplies, component parts, work-in-process and finished goods inventory and other inventory (the "Inventory"), including that listed on Schedule 1.1.10; 1.1.11 TERMINATION CLAIMS. All claims for termination for convenience or other claims against prime contractors, government agencies, or others with respect to the termination of contracts prior to the complete performance by Dettmers of any such contract, including without limitation such claims as are listed on Schedule 1.1.11, (all of such matters, including those listed on Schedule 1.1.11, are referred to as "Termination Claims"). 1.1.12 CASH, ETC.. All cash (including in deposit accounts or similarly liquid investments). 1.1.13 OTHER CLAIMS. All claims, causes of action, demands and pending litigation in which Dettmers is seeking the recovery of money or equitable relief (the "Other Claims"), including those matters listed on Schedule 1.1.13. 1.1.14 BOOKS AND RECORDS. All books of account, customer lists, files, papers and records normally maintained by Dettmers and a copy of all of the books of account and records of Dettmers. 1.1.15 TELEPHONE NUMBERS. All telephone, fax, electronic mail and other numbers for communication with Dettmers, including without limitation those numbers listed on Schedule 1.1.15. 1.1.16 GOODWILL. All goodwill of Dettmers. 2 1.2 NON-ASSIGNMENT OF ASSETS. To the extent that any Asset described in Section 1.1 may not be assigned or may only be assigned with the consent of a third party, then, notwithstanding anything to the contrary in this Agreement, neither this Agreement nor any action taken shall constitute an assignment or an agreement to assign such Asset; PROVIDED, HOWEVER, that in such case Dettmers will use its best efforts to obtain the consent of such party to the assignment to Buyer. If such consent is not obtained, Dettmers shall provide to Buyer the benefits of such Asset or a comparable asset in its place as a condition to the obligations of DAH and Buyer hereunder. 2. PURCHASE PRICE. The price for the Assets (the "Purchase Price"), shall be the amount determined pursuant to this Section 2 payable to Dettmers, or its permitted assigns, as follows: 2.1 Subject to adjustment as provided in Section 2.2, $2,200,000 of the Purchase Price shall be payable as follows: (i) $100,000 shall be paid in immediately available funds upon the execution of this Purchase Agreement; and (ii) $2,100,000 shall be paid in immediately available funds on the first business day on or after June 29, 1998 after all conditions in Section 6.2 have been satisfied or waived (which date is estimated to be June 30, 1998), (the actual date is referred to as the "Closing Date"). 2.2 The $2,100,000 amount payable on the Closing Date under Section 2.1 is subject to reduction as follows: (a) to the extent that the Assets are encumbered by indebtedness or other liens (other than accounts payable to trade creditors for goods and services incurred in the ordinary course of Dettmers' business and consistent with Dettmers' current practices for payment of trade creditors), the payment shall be reduced by the aggregate value of such indebtedness or liens; and (b) to the extent that shareholders' equity in Dettmers at the Closing Date is less than shareholders' equity reported on the December 31, 1997 preliminary balance sheet of Dettmers previously delivered to DAH, the payment shall be reduced in a corresponding amount. 2.3 On March 31 of each of the years 2000, 2001, 2002 and 2003, DAH shall pay an additional $500,000, IF as of such date the Attributed EBITDA (as defined below) for the year ended the prior December 31 is not less than $650,000 (for 1999), $800,000 (for 2000), $1,000,000 (for 2001) and $1,200,000 (for 2002). To the extent that the Attributed EBITDA for any such year is less than the foregoing target amounts specified, but exceeds 90% of such amount, Dettmers shall be paid a PRO RATA portion of the amount so specified for such year. No payment shall be made in respect of any such year for which the Attributed EBITDA is equal to or less than 90% of the foregoing target amounts. The payments contemplated by this Section 2.3 are not contingent on the continued employment of the Dettmers Shareholders by Buyer. As used herein the term "EBITDA" means 'Earnings 'Before Interest and Tax ("EBIT"), adding back to EBIT, (i) Depreciation, and (ii) Amortization (including without limitation all amortization of intangibles related to the acquisition of the Assets and all financing costs of the acquisition of the Assets). In determining EBITDA, no management fee or other charge shall be imposed by DAH. As used herein "Attributed EBITDA" means for any calendar year listed in Section 2.3, the EBITDA attributable to the Assets and included in the consolidated income statement of DAH for such year, which calculation shall be reviewed by the independent certified public accountant which renders the opinion on the financial statement of DAH for such year. The terms EBIT, Depreciation and Amortization are as defined in GAAP. In the event DAH requires the operations of Buyer after the Closing to undertake a project which, as a result of the lead time between R&D expenditure and expected revenue, will have a material adverse impact on EBITDA, the parties shall negotiate in good faith until they have reached an agreement with respect to a credit, if any, to the calculation EBITDA for the payments to be made pursuant to this Section 2.3. DAH and the Buyer shall record the purchase of the Property as net assets including goodwill. 3 3. REPRESENTATIONS AND WARRANTIES. 3.1 JOINTLY BY BUYER AND DAH. Buyer and DAH hereby jointly and severally represent and warrant to Dettmers that the representations and warranties of Buyer and DAH, and either of them, contained in this Agreement, including those contained in this Section 3.1, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. Buyer and DAH hereby jointly and severally represent and warrant to Dettmers the following: 3.1.1 ORGANIZATION. Buyer and DAH are both Corporations duly organized, validly existing and in good standing under the laws of the State of Delaware, and each have all requisite corporate power and authority to own, lease and operate their respective properties and conduct their respective businesses as now being conducted. Buyer and DAH are each duly qualified, or will be duly qualified prior to the Closing Date, to do business and in good standing in each jurisdiction listed on Schedule 3.1.1, are not qualified to do business in any other jurisdiction and neither the nature of the business conducted by either of them, nor the property either of them owns, leases or operates, requires either of them to qualify to do business as a foreign corporation in any other jurisdiction. Buyer and DAH have previously delivered to Dettmers complete and correct copies of Buyer's and DAH's articles of incorporation and bylaws as in effect on the date hereof. 3.1.2 AUTHORIZATION. Buyer and DAH each have all requisite corporate power and authority to enter into this Agreement and each of the Employment Agreements to which either is a party, perform their respective obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. All necessary corporate action has been taken by Buyer and DAH with respect to the execution and delivery of this Agreement, and the Employment Agreements to which either of them is a party, and this Agreement and such Employment Agreements to which either of them is a party, constitute valid and binding obligations of Buyer and DAH, enforceable against Buyer and DAH, as the case may be, in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.1.3 BROKERS AND FINDERS. Except as disclosed in Schedule 3.1.3, neither Buyer, DAH nor any of their officers, directors, employees or agents (the "Purchasing Parties"), has engaged any broker or finder or incurred any liability for any brokerage fees, commissions, finders' fees or similar fees or expenses and no broker or finder has acted directly or indirectly for the Purchasing Parties in connection with this Agreement or the transactions contemplated hereby. All of such fees, commissions or other liabilities incurred by the Purchasing Parties in connection with the transactions contemplated hereby shall be the sole responsibility of DAH. 3.2 BY DETTMERS AND SENIOR MANAGEMENT. Dettmers and Senior Management hereby represent and warrant to Buyer and DAH that the representations and warranties of Dettmers and Senior Management contained in this Agreement, including those contained in this Section 3.2, are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. As used in this Section 3.2, references to the "Senior Management's Knowledge" means the knowledge of Peter Dettmers and Andrew Perl. Dettmers and Senior Management hereby represent and warrant to Buyer and DAH the following: 3.2.1 ORGANIZATION. Dettmers is a corporation duly organized validly existing and in good standing under the laws of the State of Delaware. Dettmers has all requisite corporate power and authority to own, lease and operate its respective properties and conduct its business as now being conducted, and is duly qualified to do business and in good standing in each jurisdiction listed on Schedule 3.2.1, is not qualified to do business in any other jurisdiction, and neither the nature of the business conducted by it nor the property it owns, leases or operates requires it to 4 qualify to do business as a foreign corporation in any other jurisdiction. Dettmers has previously delivered to Buyer complete and correct copies of the articles of incorporation and by-laws of Dettmers, as in effect on the date hereof, and Dettmers is not in default in the performance, observation or fulfillment of any provision of their respective organizational documents. 3.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital stock of Dettmers consists solely of 3000 shares of Common Stock, $0.01 par value ("Common Shares"); Dettmers has issued 168 Common Shares, of which 168 Common Shares are outstanding, constituting all of the issued and outstanding shares of capital stock of any class of Dettmers. All outstanding Common Shares have been validly issued and are fully paid and non-assessable and free of preemptive rights. All of the ownership interests in Dettmers are owned by the persons listed in Schedule 3.2.2. 3.2.3 AUTHORIZATION OF DETTMERS. Dettmers has full corporate power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party, perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. All necessary and appropriate corporate action has been taken by Dettmers with respect to the execution and delivery of this Agreement, and the other Transaction Documents to which it is a party. This Agreement constitutes, and the other Transaction Documents to which Dettmers is party when executed and delivered will constitute, valid and binding obligations of such party, enforceable against each such party in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium laws and other laws of general application affecting the enforcement of creditors' rights generally. 3.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 3.2.4(a) are (i) the balance sheets of Dettmers as at December 31, 1995, 1996 and 1997 and as at March 31, 1998, and (ii) the related statements of income for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1998 (all of such documents referred to collectively as the "Financial Statements"). The Financial Statements dated as of March 31, 1998 either (a) reflect the equivalent of any adjustments made in the Financial Statements dated as of December 31, 1997 or (b) have footnote disclosure to reflect the absence of such adjustments and the dollar amount of such adjustments had they been made. The Financial Statements (i) are true, correct and complete, subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b), (ii) have been prepared from and are in accordance with the books and records of Dettmers, (iii) have been prepared using an accrual basis method and average cost inventory cost flow assumptions, (iv) are in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis for such periods subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b), and (v) fairly present in all material respects the financial position of Dettmers as of the dates stated and the results of operations of Dettmers for the periods then ended in accordance with such practices, subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b). On the date of this Agreement and on the Closing Date, Dettmers has no material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as reflected or provided for in the balance sheets in the Financial Statements, subject to the qualifications (if any) explicitly set forth therein and in Schedule 3.2.4(b) or, if not required by GAAP to be so reflected, in Schedule 3.2.4(b). Since December 31, 1997, except as described on Schedule 3.2.4, there has been no material adverse change in the financial condition, operations, business or prospects taken as a whole of Dettmers from that set forth in the Financial Statements dated as of December 31, 1997. 5 3.2.5 COMPLIANCE WITH LAW. (a) Dettmers is in compliance in all material respects with all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered, by any federal, state, local or foreign court or governmental authority or instrumentality, the violation of which would be materially adverse to Dettmers or its businesses or properties. (b) Dettmers is compliance in all material respects with all federal, state and local laws, ordinances, rules and regulations pertaining to environmental matters, including solid waste disposal, toxic substances, hazardous substances, hazardous materials, hazardous waste, toxic chemicals, pollutants, contaminants and air or water pollution and to the storage, use, handling, transportation, discharge and disposal (including spills and leaks) of gaseous, liquid, semi-solid or solid materials. Neither Dettmers nor, to Senior Management's Knowledge, any third party has disposed or discharged any chemicals, oil or solid wastes on any part of the Real Property or on any other property owned, operated, leased or used by Dettmers. There are no underground storage tanks located on any part of the Real Property or any other property owned, operated, leased or used by Dettmers, except as disclosed on Schedule 3.2.5(b). (c) Schedule 3.2.5(c) contains a complete and accurate list of all material Permits. Each of such Permits is currently valid and in full force and effect and assignable to Buyer, and the closing of and the transactions contemplated by this Agreement will not result in the termination of any Permit. Such Permits listed on such schedule constitute all material franchises, licenses, permits, consents, authorizations, approvals, and certificates of any regulatory, administrative or other agency or body necessary for the conduct of the business of Dettmers. Dettmers is not in violation of any of such Permits and there is no pending or threatened proceeding which could result in the revocation, cancellation or inability of Dettmers to renew or transfer any such Permit which is material to its business. Without limiting the foregoing, no consents, authorizations, approvals or similar agreements or acquiescence is required from any issuer or regulator of any Permit to any of the transactions contemplated hereby, except to the extent listed on Schedule 3.2.5(c). (d) To Senior Management's Knowledge, except as set forth in Schedule 3.2.5(d), Dettmers is not under investigation with respect to, or is currently subject to a charge of, or under notice of any violation of, any applicable law. 3.2.6 PROPRIETARY RIGHTS. The sale by Dettmers contemplated hereby, ownership by Buyer of any of the Assets and, to Senior Management's Knowledge, the business of Dettmers as conducted prior to the Closing Date, except as disclosed on Schedule 3.2.6, was not, is not and will not infringe or be in contravention of any trade name, service mark, patent, trademark, copyright or other proprietary right of any third party. Schedule 3.2.6 sets forth all of the Proprietary Rights and Registrations owned or used by Dettmers. None of the Proprietary Rights are registered with any governmental or regulatory authority except as set forth on Schedule 3.2.6. The amount of each of the royalties and license fees presently paid by or on behalf of Dettmers in the ordinary course of its business is listed in Schedule 3.2.6. 3.2.7 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the matters listed on Schedule 3.2.7, Dettmers is not bound under any (and, to Senior Management's Knowledge, there is no) pending, proposed or threatened regulation, certificate, mortgage, lien, lease, agreement, contract, instrument, law, vote, order, judgment or decree, or any similar restriction not of general application which materially restricts or otherwise adversely affects, or reasonably could be expected to materially restrict or otherwise adversely to affect (a) the consummation of the transfers of the Assets to Buyer and the other transactions contemplated in this Agreement or (b) in any material respect: (i) the condition, financial or otherwise, of Dettmers or any material 6 part of the Assets; or (ii) the continued operation by Buyer of the business of Dettmers after the Closing Date on substantially the same basis as said business was theretofore operated. 3.2.8 REAL PROPERTY. Schedule 3.2.8 contains complete and accurate legal descriptions of each parcel of Real Property and a list of all Real Property Leases identifying the Leased Real Property leased thereunder; and Dettmers owns, leases, uses or licenses no real property interests other than as are listed on such schedule. The Real Property includes all such interests now owned or used by Dettmers and material to the operation of its business as presently conducted. All such properties are held free and clear of all mortgages, pledges, liens, security interests and encumbrances, and material restrictions of any nature whatsoever, except as listed on Schedule 3.2.8. Except as set forth in Schedule 3.2.8, all real property and each building and structure owned or used by Dettmers, and material to the operation of its business as presently conducted, is suitable for the purpose or purposes for which it is being used, and is in all material respects in such condition and repair as to permit the continued operation of said business. To Senior Management's Knowledge, none of such real property, buildings or structures is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. To Senior Management's Knowledge, there are no material structural defects in the exterior walls or the interior bearing walls, the foundation or the roof of any plant, building, garage or other such structure owned, leased or used by Dettmers and the electrical, plumbing and heating systems, and the air conditioning system, if any, of any such plant, building, garage or structure are in reasonable operating condition in light of their age and prior use. To Senior Management's Knowledge, the utilities servicing the real property owned, leased or used by Dettmers are adequate to permit the continued operation of the business of Dettmers and to Senior Management's Knowledge, there are no pending zoning, condemnation or eminent domain proceedings, building, utility or other moratoria, or injunctions or court orders which would materially effect such continued operation. Schedule 3.2.8 lists, and Dettmers has furnished or made available to Buyer copies of, all engineering, geologic and environmental reports prepared by or for Dettmers with respect to the real property owned, leased or used by Dettmers. 3.2.9 PERSONAL PROPERTY. Schedule 3.2.9 contains complete and accurate descriptions of, Dettmers' Machinery, Equipment, Tooling and Vehicles. Except as set forth in Schedule 3.2.9, and except with respect to personal property leased pursuant to the Personal Property Leases, Dettmers has good, valid and marketable title to all of its property which is personal property of every kind, nature and description, tangible or intangible, and wherever located, including all property and assets which are personal property shown or reflected on the March 31, 1998 Balance Sheet. Schedule 3.2.9 contains a complete and accurate description of all Personal Property Leases to which Dettmers is party or which Dettmers uses in its business. The Property which is personal property constitutes all material personal property now used in and necessary for the conduct of the business of Dettmers as presently conducted, all of which is held free and clear of all mortgages, pledges, liens, security interests, encumbrances and material restrictions of any nature whatsoever, except as listed on Schedule 3.2.9. Except as listed on Schedule 3.2.9, no financing statement under the Uniform Commercial Code or similar law naming Dettmers as debtor has been filed in any jurisdiction, and Dettmers is not a party to or bound under any agreement or legal obligation authorizing any party to file any such financing statement. Except as set forth on Schedule 3.2.9, all Machinery and Equipment and other tangible personal property owned or used by Dettmers and material to the operation of the business as presently conducted is suitable for the purpose or purposes for which it is being used, and is in all material respects in such condition and repair as to permit the continued operation of said business. None of the Machinery or Equipment is in need of maintenance or 7 repairs in any material respect except for ordinary, routine maintenance and repairs necessary to permit the operation of said business. 3.2.10 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.2.10, the operations of Dettmers meet the requirements of all occupational health and safety acts and all environmental laws and regulations of all federal, state and local governmental or regulatory bodies having jurisdiction over Dettmers. Without limiting the generality of the foregoing, and by way of example only, except as set forth on Schedule 3.2.10: (a) There has not been, and is not occurring, any Release of any Hazardous Substance on any real property owned, operated, leased or used by Dettmers. For purposes of this Agreement, the terms "Release" and "Hazardous Substance" shall have the same meanings as those terms are given in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except that for purposes of this Agreement petroleum (including crude oil or any fraction thereof) shall be deemed a Hazardous Substance. (b) Dettmers has not ever sent a Hazardous Substance to a site which, pursuant to CERCLA or any similar state law, (A) has been placed, (or to Senior Management's Knowledge, is proposed to be placed, or may in the future be placed,) on the "National Priorities List" of hazardous waste sites or on any similar list of any federal, state or local governmental agency, including the Comprehensive Environmental Response, Compensation and Liability System list for potential hazardous waste sites, or (B) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (as defined under CERCLA) or to pay for any costs relating to such site. (c) Dettmers has not ever been or is currently in violation of any provision of the Toxic Substances Control Act or the regulations promulgated thereunder. (d) Dettmers is not involved in any suit or has received notice of any claim relating to personal injuries from exposure to Hazardous Substances. 3.2.11 BROKERS, FINDERS. Except as disclosed on Schedule 3.2.11, (a) the transactions contemplated herein were not submitted to Dettmers nor any of its officers, directors, employees or Shareholders or their respective agents (the "Selling Parties") by any broker or other person entitled to a commission or finder's fee thereon, and were not with the consent of the Selling Parties submitted to DAH by any such broker or other person; (b) none of the Selling Parties has engaged any broker or finder or incurred or taken any action which may give rise to any liability against Dettmers or the Property for any brokerage fees, commissions, finders fees or similar fees or expenses, and no broker or finder has acted directly or indirectly for the Selling Parties in connection with this Agreement or the transactions contemplated hereby; and (c) no investment banking, financial advisory or similar fees have been incurred or are or will be payable by the Selling Parties in connection with this Agreement or the transactions contemplated hereby. All of such fees, commissions or other liabilities incurred by any of the Selling Parties in connection with the transactions contemplated hereby shall be the sole responsibility of the Dettmers Shareholders; and none of the Assets of Dettmers have been or shall be applied to pay the same. 3.2.12 LEGAL PROCEEDINGS, ETC. Except as set forth on Schedule 3.2.12, there is no claim, litigation, action, suit or proceeding, administrative or judicial, filed, pending, or to Senior Management's Knowledge, threatened against Dettmers, or involving the Assets, this Agreement or the transactions contemplated hereby, at law or in equity, before any federal, state or local court or regulatory agency, or other governmental authority, including any unfair labor practice or grievance, proceedings or claim, which although disclosed on Schedule 3.1.12 would have a material adverse effect on the business or assets of Dettmers. To Senior Management's knowledge, there is no basis upon which such claim, litigation, action, suit or proceeding would 8 reasonably be brought or initiated. Except as set forth in Schedule 3.2.12, Dettmers is not subject to any judgment, order or decree, or, to Senior Management's Knowledge, any governmental restriction applicable to Dettmers which has a reasonable probability of having a Material Adverse Effect. As used herein, "Material Adverse Effect" means any material adverse change in the business operations (as presently conducted or proposed to be conducted), assets, properties or rights, prospects or condition (financial or otherwise) of Dettmers, or any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change, or which materially adversely affects the ability of Dettmers to conduct business in any area, or of Buyer to continue the business of Dettmers as presently conducted. 3.2.13 NO CONFLICT OR DEFAULT. Neither the execution and delivery of this Agreement or any other Transaction Document, nor compliance with the terms and provisions hereof or thereof, including the consummation of the transactions contemplated hereby and thereby, will (a) violate in any material respect any statute, regulation or ordinance of any governmental authority, or (b) conflict with or result in the breach of any term, condition or provision of the articles of incorporation or bylaws of Dettmers, or (c) to Senior Management's Knowledge, conflict with or result in the breach of any term, condition or provision of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument, to which Dettmers is a party or by which such party or any part of the Assets are or may be bound, or (d) constitute a material default (or an event which with the lapse of time or the giving of notice, or both, would constitute a material default) under any such agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation or instrument thereunder, or (e) result in the creation or imposition of any material lien, charge or encumbrance, or to Senior Management's Knowledge, any other material restriction of any nature whatsoever with respect to any part of the Property, or (f) give to others any interest or rights, including rights of termination, acceleration or cancellation in or with respect to any part of the Property or the business of Dettmers which would have a Material Adverse Effect thereon. 3.2.14 LABOR RELATIONS. Schedule 3.2.14 sets forth all collective bargaining or other labor agreements to which Dettmers is bound and which covers Dettmers employees. Dettmers has previously delivered to Buyer true, correct and complete copies of each such agreement. There is no labor strike, dispute, slowdown or stoppage, or petition for certification actually pending or, to Senior Management's Knowledge, threatened against or involving Dettmers, nor, to Senior Management's Knowledge, any union organizing campaign pending or threatened. Schedule 3.2.14 sets forth all pending grievances and arbitration proceedings against Dettmers arising out of or under a collective bargaining or other labor agreement. No collective bargaining or other labor agreement is currently being negotiated by or on behalf of Dettmers. With respect to the business of Dettmers, Dettmers has not experienced any work stoppage or other material labor difficulty over the past three years. Except for the employment contract with Pam Courtnery there is no obligation of Dettmers to any employee or any person employed by Staff Leasing assigned to Dettmers except for an "at will" relationship. No agreement which is binding on Dettmers restricts it from relocating or closing any or all of its operations. 3.2.15 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in Schedule 3.2.15, Dettmers does not currently sponsor, maintain or contribute to, nor within the past 3 years sponsored, maintained or contributed to, any pension, retirement, profit-sharing, deferred compensation, bonus, stock option or other incentive plan, or any other employee benefit program, arrangement, agreement or understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such employee benefit plan is otherwise exempt from the provisions of ERISA, and whether or not formal or informal, written or oral, and whether or 9 not legally binding. All such plans are fully funded through the date of this Agreement or amounts sufficient to fully fund contributions to such plans through the Closing Date are reserved for in the March 31, 1998 Financial Statements. All such plans, funds or programs sponsored, maintained or contributed to by Dettmers currently or within the past 3 years, whether or not listed on Schedule 3.2.15, are hereinafter referred to as the "Employee Benefit Plans"). For the purpose of this Section 3.2.15, the term "Dettmers" shall include all "entities" of Dettmers, whether or not incorporated, with which it would be treated as a single employer for purposes of Sections 414(b), (c) or (m) of the Internal Revenue Code (the "Code"). (b) As of the Closing Date, no entity that may be regarded as under common control with Dettmers pursuant to Section 414 of the Code shall have incurred any unsatisfied liability under Title IV of ERISA or Section 4980 of the Code, nor shall any such entity have become subject to a lien pursuant to Section 412(n) of the Code. (c) Full payment has been made of all amounts which Dettmers is required, under applicable law or under any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to which it is a party, to have paid as contributions to, or benefits under, any Employee Benefit Plan as of the last day of the most recent fiscal year of such Employee Benefit Plan ended prior to the date hereof. Dettmers has made adequate provision in its financial statements for liabilities to meet current contributions or benefit payments. (d) Dettmers has performed all obligations required to be performed by it under the Employee Benefit Plans. Dettmers has not engaged in any transaction with respect to the Employee Benefit Plans which would subject it, Buyer or DAH to a tax, penalty or liability for a prohibited transaction under section 406, 407 or 502(i) of ERISA or Section 4975 of the Code, nor have any of Dettmers' directors, officers, partners, employees or agents, to the extent they or any of them are fiduciaries with respect to such Employee Benefit Plans, breached any of their responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or which would result in any claim being made under or by or on behalf of any such Employee Benefit Plans by any party with standing to make such claim. Dettmers will not have any plan or commitment, whether formal or informal, written or oral, and whether or not legally binding, to modify or change any Employee Benefit Plan in any material manner prior to the Closing Date. Dettmers and any "administrator(s)" (as described in Section 3(16)(A) of ERISA) of the Employee Benefits Plans have complied in all material respects with the applicable requirements of ERISA, the Code and all other statutes, orders, rules or regulations, specifically including material compliance with all reporting and disclosure requirements of Part 1 of Title 1 of ERISA and of the Code in a timely and accurate manner, and no penalties have been or will be imposed, nor is Dettmers or any administrator liable for any penalties imposed, under ERISA, the Code or otherwise with respect to the Employee Benefit Plans or any related trusts. Dettmers is not delinquent in the payment of any federal, state or local taxes with respect to the Employee Benefit Plans. There is no pending litigation, arbitration, or disputed claim, settlement adjudication or proceeding with respect to the Employee Benefit Plans, and neither Dettmers nor any administrator is aware of any threatened litigation, arbitration or disputed claim, adjudication proceeding, or any governmental or other proceeding, or investigation with respect to the Employee Benefit Plans or with respect to any fiduciary or administrator thereof (in their capacities as such), or any party-in-interest thereto (with respect to their relationship as such). There is no "defined benefit plan" within the meaning of Section 414(j) of the Code or Section 3(35) of ERISA to which Dettmers has been a party or has been required to make any contributions at any time during the last ten years. There is no "multiemployer plan" within the meaning of Section 3(37) of ERISA to which Dettmers has been a party or has been required to make any contributions at any time during the last ten years. 10 (e) Dettmers has delivered or caused to be delivered to Buyer and DAH prior to the Closing, true, accurate and complete copies of (A) all Employee Benefit Plans and any related trust agreements, custodial agreements, investment management agreements, insurance contracts or policies, and administrative service contracts, all as in effect, together with all amendments thereto which will become effective at a later date; (B) the latest Summary Plan Description and any modifications thereto for each Employee Benefit Plan requiring same under ERISA; (C) the Summary Annual Report for the current and prior fiscal years for each Employee Benefit Plan requiring same under ERISA; (D) each Form 5500 and/or Form 990 series filing (including required schedules and financial statements) for the current and prior fiscal years for each Employee Benefit Plan required to file such form; and (E) the most recent actuarial evaluation, analysis or other report issued with respect to any Employee Benefit Plan. Neither Dettmers nor any officer, partner, employee, representative or agent of Dettmers has made any written or oral representations or statements to any current or former employees, dependents, participants or beneficiaries or other persons which are inconsistent in any material manner with the provisions of these documents. (f) With respect to any of Dettmers' employee welfare plans (as defined in Section 3(1) of ERISA and including those Employee Benefits Plans which qualify as such) which are "group health plans" under Section 4980B of the Code and Section 607(1) of ERISA and related regulations (relating to the benefit continuation rights imposed by the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as amended to date), there has been timely compliance in all material respects with all requirements imposed thereunder, as and when applicable to such plans, so that Dettmers has not (nor will incur any) loss, assessment, penalty, loss of federal income tax deduction or other sanction, arising on account of or in respect of any failure to comply with any COBRA benefit continuation requirement, which is capable of being assessed or asserted directly or indirectly against such party, or against Buyer or DAH or any of their respective subsidiaries or other member of Buyer's corporate control group, with respect to any such plan. Dettmers has no obligation to provide medical benefits to any former employee, except as required by COBRA. (g) No Employee Benefit Plan maintained by Dettmers which is a "welfare plan" within the meaning of Section 3(1) of ERISA provides benefits to employees after termination of employment, except as required by Section 4980B of the Code. 3.2.16 CONTRACTS AND COMMITMENTS. Schedule 3.2.16 is a list of all of the Contracts to which Dettmers is a party and which involve the payment by or to Dettmers in the aggregate of $50,000 or more (per contract) during any year. Dettmers has previously delivered to Buyer correct and complete copies of each such Contract. The Real Property Leases, the Personal Property Leases and the Contracts listed on Schedule 3.2.16, taken together, constitute all of the contracts, agreements, contract rights, leases, license agreements, franchise rights and agreements, policies, purchase and sales orders, quotations and executory commitments, instruments, guaranties, indemnifications, arrangements, obligations and understandings (written or oral), involving the payment by or to Dettmers, in the aggregate of $50,000 or more (per contract) during any year, necessary to the conduct of the business of Dettmers as presently conducted. All of the Real Property Leases, the Personal Property Leases and the Contracts are valid and binding, in full force and effect and enforceable against Dettmers in accordance with their respective provisions. Dettmers has not assigned, mortgaged, pledged, encumbered, or otherwise hypothecated any of its right, title or interest under any Real Property Lease, any Personal Property Lease, or any Contract. Neither Dettmers nor, to Senior Management's Knowledge, any other party thereto is in material violation of, in default in respect of, nor has there occurred an event or condition which, with the passage of time of giving of notice (or both) would constitute a material violation or default of, any Real Property Lease, any Personal Property Lease, or any 11 Contract, and, to Senior Management's Knowledge, there are no facts or circumstances which would reasonably indicate that Dettmers (or any other party) will be or may be in material violation of or in default in respect of any Real Property Lease, any Personal Property Lease, or any Contract, subsequent to the date hereof. Without limiting the foregoing, no consents, authorizations, approvals or similar agreements or acquiescence is required from any party under any Contract, Real Property Lease or Personal Property Lease to any of the transactions contemplated hereby, except to the extent listed on Schedule 3.2.16 hereof, and each of such consents will be delivered to DAH on the Closing Date. No notice has been received by Dettmers claiming any such default or indicating the desire or intention of any other party thereto to amend, modify, rescind or terminate the same to the extent that it would have a Material Adverse Effect on the business or assets of Dettmers. 3.2.17 ACCOUNTS RECEIVABLE, ETC.. All of the Receivables of Dettmers are set forth on Schedule 3.2.17, together with the value thereof. All such Receivables and Prepaid Expenses, together with any additional Receivables and Prepaid Expenses arising between the date hereof and the Closing Date (in each case net only of such allowances for doubtful accounts as are disclosed on the March 31, 1998 Balance Sheet), (a) are or will be valid and subsisting, (b) represent or will represent sales actually made, (c) arose or will arise in the ordinary and usual course of the business of Dettmers, (d) except as set forth on Schedule 3.2.17, to the extent not collected prior to the Closing Date, will be due and enforceable according to their terms within 90 days after the date of the initial invoice therefor, and (e) are not and (except as may be caused by Buyer) will not be subject to any material counterclaim, set-off, defense, lien, charge or encumbrance of any nature. There has not been any material adverse change in the collectibility of the Receivables of Dettmers since March 31, 1998. Buyer will use diligent efforts to collect the Receivables. 3.2.18 INVENTORIES. Schedule 3.2.18 completely and accurately lists all raw materials, supplies, parts, work-in-process, and finished goods inventory and other inventory owned by Dettmers and the accurate cost of such inventory as of March 31, 1998. Except as set forth in Schedule 3.2.18 and except for amounts which in the aggregate are not material, all such inventories (i) consist of a quality and quantity usable and saleable in the ordinary and usual course of business, except for items of obsolete materials and materials of substandard quality, all of which have been written off or written down on the books of Dettmers to net realizable value prior to March 31, 1998 and (ii) have been priced at the lower of cost or market on a FIFO basis. The quantities of all material portions of each type of inventory (whether raw materials, work-in- process, or finished goods) are not excessive, but are reasonable and warranted in the present circumstances of Dettmers; and all material portions of work-in-process and finished goods inventory is free of any material defect or other deficiency. 3.2.19 BACKLOG. All unfilled orders to purchase goods and services of Dettmers are set forth in Schedule 3.2.19 and are firm and binding commitments (subject to cancellation rights set forth therein) of the respective purchasers (assuming that each such purchaser has properly authorized the same by all requisite acts and has properly executed and delivered a purchase order, which assumption, to Senior Management's Knowledge, is the case) to purchase the goods or services indicated. 3.2.20 BOOKS OF ACCOUNT: RECORDS. Except for the qualifications (if any) explicitly set forth therein or in Schedule 3.2.20 the general ledgers, books of account and other financial records of Dettmers are complete and correct, have been maintained in accordance with good business practices, and the matters contained therein are appropriately and accurately reflected in the Financial Statements. 12 3.2.21 MANAGERS, EMPLOYEES AND COMPENSATION. Schedule 3.2.21 sets forth the name of all managers and engineers of Dettmers, their respective terms of office, the total salary, bonus payments, fringe benefits and perquisites each received in each of the calendar years ending December 31, 1995, 1996 and 1997 (or, if briefer, during their tenure of employment with Dettmers and any affiliate thereof), and changes to the foregoing which have occurred since December 31, 1997, together with the professional background of each manager and engineer for the last 5 years (as disclosed to Dettmers by such employee and, to Senior Management's Knowledge, correctly and completely); such Schedule also lists and describes the current base salary, bonus payments, fringe benefits and perquisites of any other employee, agent or representative of Dettmers whose total current salary, bonus or other compensation exceeds $50,000 annually during any of the calendar years ending December 31, 1995, 1996 or 1997, and changes to the foregoing since December 31, 1997. There are no other material forms of compensation paid to any such director, officer or employee of Dettmers. The provisions for wages and salaries accrued on the March 31, 1998 Balance Sheet are adequate for salaries and wages, including accrued vacation pay, for the period up through the date thereof, and Dettmers has accrued on its books and records all obligations to pay wages and salaries and other compensation to its employees, including, but not limited to, vacation pay and sick pay, and all commissions and other fees payable to agents, salesmen and representatives. Dettmers has filed any and all payroll tax returns, and paid all payroll taxes due for any and all employees due through the Closing Date. Except as set forth on Schedule 3.2.21, Dettmers has not become obligated, directly or indirectly, to any shareholder, director, officer or partner of Dettmers or any member of their families, except for current liability for employment compensation. Except as set forth on Schedule 3.2.21, no shareholder, director, officer, partner, agent or employee of Dettmers holds any position or office with or has any financial interest, direct or indirect, in any supplier, customer or account of, or other outside business which has transactions with Dettmers. Neither Dettmers nor, to Senior Management's Knowledge, any third party, has taken any action with respect to any shareholder, director, officer, partner, employee or representative of Dettmers to attempt to induce or which would influence any such person not to become associated with Buyer from and after the Closing Date or from serving Buyer in a capacity similar to the capacity presently held. Except to the extent as may have been previously disclosed to DAH by Dettmers in writing, no employee of Dettmers, to Senior Management's knowledge, has a present intention to leave the employ of Dettmers or has taken any action directed towards leaving the employ of Dettmers. Except as set forth on Schedule 3.2.21, to Senior Management's Knowledge, no former officer or employee of Dettmers is currently or intends to enter into competition with the business of Dettmers. 3.2.22 CREDIT TERMS: PRODUCT WARRANTIES. Schedule 3.2.22(a) sets forth all of the standard terms and conditions of credit and discounts given by Dettmers to its customers in the usual and ordinary course of its business and a list of all transactions pending where there is a material departure therefrom. There has been no material change in the aggregate amount of losses and expenses incurred by reason of allowances, customer dissatisfaction or liabilities arising under Dettmers's warranties and guarantees during the three years ended December 31, 1997; and there has been no material adverse change in that experience since said date. Except as set forth on Schedule 3.2.22(b), (i) there have been no recalls of Dettmers product, (ii) to the knowledge of Senior Management, there is no Dettmers product which is either defective or likely to experience a failure rate materially greater than the average for Dettmers' products over the three year period ended December 31, 1997, and (iii) Dettmers has conducted all qualification inspections and quality conformance inspections required by the specifications for products of Dettmers included on qualified products lists in material compliance with the requirements of such specifications, and all products shipped have been in material conformance with such specifications. 13 3.2.23 CONTRACTS WITH AFFILIATES. Any contract, commitment, lease, permit or other instrument, agreement, understanding or obligation (written or oral) between Dettmers and any affiliate of Dettmers or any officer thereof is described on Schedule 3.2.23 hereto, and is the equivalent of an "arms-length" transaction with a third party (except to the extent otherwise described in Schedule 3.2.23). 3.2.24 GOVERNMENT CONTRACTS. (a) For purposes of this Section 3.2.24, (i) the term "Government" means any agency, division, subdivision, audit group, or procuring office of the federal government, including the employees or agents thereof; (ii) the term "Government Contract" means any prime contract, subcontract, basic ordering agreement, letter contract, purchase order or delivery order of any kind, including all amendments, modifications and options thereunder or relating thereto, between Dettmers and any of the Government, any prime contractor of the Government, any subcontractor of such a prime contractor or any subcontractor of another subcontractor, however far removed from the prime contractor such subcontractor may be, (x) currently in force, or (y) which, within the three years preceding the date of this Agreement, expired or were terminated, or (z) for which final payment was received within the three years preceding the date of this Agreement; and (iii) the term "Bid" means any outstanding quotation, bid or proposal submitted by Dettmers to the Government, any proposed prime contractor of the Government, or any proposed subcontractor. (b) Dettmers is not a party to any Government Contract and has not submitted any Bids which have not expired. (c) Except as set forth in Schedule 3.2.24, (i) no show cause notices, cure notices, or terminations have been issued against Dettmers with respect to any Government Contract; (ii) no negative determinations of responsibility have been issued against Dettmers with respect to any Bid and (iii) neither the Government, any prime contractor nor any subcontractor has notified Dettmers, either orally or in writing, that it is in breach or violation of any provision of any Government Contract, any certification or representations with respect thereto, or any statutes and regulations applicable thereto. (d) Dettmers is not undergoing and has not undergone any audit, and has no knowledge or reason to know of any basis for impending audits in the future, arising under or relating to any Government Contract except as set forth in Schedule 3.2.24. 3.2.25 SOLVENCY. The total assets of Dettmers exceed its total liabilities; and Dettmers generally is able to perform its financial obligations as performance thereof becomes due. 3.2.26 INSURANCE. Schedule 3.2.26 is a true, correct and complete list of all insurance policies and bonds in force in which Dettmers is named as an insured party, as respects the business of Dettmers, or for which Dettmers has been charged or has paid any premiums; all of which are currently in full force and Dettmers has not received any notice from any such insurer with respect to the cancellation of any such insurance. Dettmers has previously delivered correct and complete copies of all such policies to DAH. Dettmers will continue all of such insurance in full force and effect up to and including the Closing Date. All premiums due and payable on such policies have been paid. Dettmers is not a co-insurer under any term of any insurance policy. 3.2.27 BANK ACCOUNTS, DEPOSITORIES AND POWERS OF ATTORNEY. Schedule 3.2.27 is a true, correct and complete list of the names and locations of all banks or other depositories in which Dettmers maintains accounts or safe deposit boxes, and the names of the persons authorized to draw thereon, borrow therefrom or have access thereto. No person or entity holds a power of attorney on behalf of Dettmers. 14 3.2.28 UNDISCLOSED LIABILITIES. Except as disclosed on Schedule 3.2.28, Dettmers has no liability or obligation of any nature individually in the amount of $50,000 or in the aggregate in the amount of $100,000 (whether liquidated, unliquidated, accrued, absolute, known or unknown, contingent or otherwise and whether due or to become due) except: (a) those set forth or reflected in the March 31, 1998 Balance Sheet which have not been paid or discharged since the date thereof; (b) those arising under agreements or other commitments expressly identified in any Schedule hereto; and (c) current liabilities incurred in, or as a result of, the conduct of its business in the ordinary and usual course consistent with past practice since March 31, 1998, which are completely and accurately reflected on its books and records and which are not inconsistent with the other representations, warranties and agreements of Dettmers set forth in this Agreement. 3.2.29 TAXES. Except as set forth on Schedule 3.2.29, Dettmers has filed, when due, all federal, state, local and foreign tax returns and tax reports. All amounts payable pursuant to such returns by Dettmers through the Closing Date have been paid, or will be timely paid and are adequately provided for in the March 31, 1998 Financial Statements. All such returns and reports are true and correct and, except as disclosed on Schedule 3.2.29, none of them have been amended. Schedule 3.2.29 sets forth the dates and any results of any and all audits of any tax returns of Dettmers (whether pending or completed) performed by federal, state, local or foreign taxing authorities; and no waivers of any statutes of limitation have been made or requested in connection therewith. No deficiency for any material amount of tax has been asserted or assessed by any taxing authority against Dettmers. All estimated tax payments have been made except as reserved for in the Balance Sheet included in the March 31, 1998 Financial Statements, and there will not be any amount owing by Dettmers for taxes, penalties or interest. 3.2.30 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set forth on Schedule 3.2.30, since March 31, 1998, there has not been: (a) Any Material Adverse Effect; (b) Any transaction entered into or carried out by Dettmers other than in the ordinary and usual course of business; (c) Any borrowing or agreement to borrow funds; any incurring of any assumption, guarantee or other obligation or liability, contingent or otherwise; or any assumption or performance of any loan or obligation of any other entity, except (i) current liabilities incurred in the usual and ordinary course of business or (ii) otherwise, those in an amount not exceeding in the aggregate $50,000 at any one time outstanding; (d) Any material change made by Dettmers in the methods of doing business, or other than such changes required by GAAP, any change in the accounting principles or practices of Dettmers with respect to any of the Financial Statements or the method of application of such principles or practices; (e) Any mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance imposed or agreed to be imposed on or with respect to any of the Assets, Real Property or Personal Property); (f) Any sale, lease or other disposition of or any agreement to sell, lease or otherwise dispose of any of the Property or Assets of Dettmers, other than sales of finished goods in the usual and ordinary course of business and at Dettmers's scheduled prices or the prices specified in Contracts copies of which have previously been delivered to DAH; 15 (g) Any purchase of, or any agreement to purchase, capital assets for an amount in excess of $50,000 for any one such purchase, or $100,000 for all such purchases made by Dettmers; or any lease or any agreement to lease, as lessee, any capital assets with payments over the term thereof to be made by Dettmers exceeding an aggregate of $50,000 for any one lease or $100,000 in the aggregate; (h) Any loan or advance made by Dettmers to any individual, firm, corporation or other entity except for advances not material in amount made in the usual and ordinary course of business to employees; or (i) Any other event or condition of any character which has had a Material Adverse Effect or may reasonably be expected to result in a Material Adverse Effect. 3.2.31 USE OF NAME. Without limiting the effect of Section 1.1.6(a) hereof, Dettmers owns the names "Dettmers Industries, Inc." and "Dettmers", and any related trademarks and trade names, free and clear and, to Senior Management's Knowledge, without any restrictions or limitations on their use, acknowledges that Buyer plans to operate the Assets under the same or similar corporate names immediately after the Closing Date, and unconditionally consents to such use for such duration as DAH may at its sole option elect. 3.2.32 COMPLETE DISCLOSURE. No representation or warranty made by Dettmers and the Dettmers Shareholders in this Agreement, and no exhibit, schedule, statement, certificate or other information furnished to Buyer by or on behalf of the Dettmers Shareholders, Dettmers or its officers pursuant to this Agreement, or in connection with the transactions contemplated hereby or thereby, contains or will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary in light of the circumstances to make the statements contained herein and therein not misleading. The Schedules to this Agreement identified in this Agreement as Schedules of Dettmers and the Dettmers Shareholders have been prepared by and at the exclusive direction of Dettmers and the Dettmers Shareholders. The mechanical assistance of DAH and Buyer in the physical preparation of the Schedules is not and will not be asserted by either Dettmers or the Dettmers Shareholders as preparation of the Dettmers and Dettmers Shareholders Schedules by DAH and/or Buyer. 4. ASSUMPTION OF CERTAIN LIABILITIES; NO ASSUMPTION OF OTHER LIABILITIES. 4.1 On the Closing Date, Buyer will assume: 4.1.1 ACCOUNTS PAYABLE. All accounts payable for current purchases by Dettmers outstanding as of the Closing Date; PROVIDED, HOWEVER, that Buyer shall not assume the obligation to pay any vendor to Dettmers with whom Dettmers has a dispute as to the amount of the account payable. A schedule of the accounts payable of Dettmers as of March 31, 1998 is attached as Schedule 4.1.1; 4.1.2 ACCRUED OPERATING EXPENSES. All accrued operating expenses which were incurred by Dettmers in the ordinary course of business and which are reflected as a liability on the balance sheet for Dettmers as of the Closing Date. Attached as Schedule 4.1.2(a) is a balance sheet as at March 31, 1998 and the general ledger for Dettmers as of said date, a copy of which is attached as Schedule 4.1.2(b). 4.1.3 OPERATING LEASE(S). The leases specified on Schedule 1.1.2; together with the written consents of the lessors of such property to the assignment of the leases to Buyer, each dated no less than 1 day prior to the Closing Date. 16 4.1.4 OPEN PURCHASE CONTRACTS. The obligation of Dettmers as purchaser to perform all purchase contracts in existence on the Closing Date which were incurred by Dettmers in the ordinary course of business. 4.1.5 CURRENT LIABILITIES FROM OPERATIONS IN THE ORDINARY COURSE. Those obligations of Dettmers which have been incurred from and after March 31, 1998 in the ordinary course of business and which are expressly permitted by the affirmative covenants and not prohibited by the negative covenants set forth in Section 5.2 of this Agreement. 4.1.6 WARRANTY OBLIGATIONS. To the extent of $25,000 per year, the obligation to provide warranty work provided to the customer in any sales agreement of Dettmers. 4.1.7 ROYALTIES AND LICENSE FEES. To the extent of Royalties for Patents and License Fees specified in Schedule 4.1.7, the Royalties and License Fees which appear on said Schedule. 4.1.8 VACATION, SICK LEAVE AND PENSION BENEFITS. To the extent reserved for in the balance sheet as of March 31, 1998, or to the extent of assets transferred with respect to pension liabilities, to pay for vacation time, sick leave and to provide pension benefits, in each case to the extent specified on Schedule 4.1.8. 4.1.9 EMPLOYMENT CONTRACTS. Subject to modification to delete the obligation in Section 2.4 thereof, Buyer shall assume the Employment Agreement of Pamela Courtney dated January 1, 1998. Neither Buyer nor DAH shall assume any other employment contract. 4.2 LIABILITIES NOT ASSUMED. With the exception of the liabilities assumed pursuant to Section 4.1, Buyer shall not by the execution or performance of this Agreement, or otherwise, assume or otherwise be responsible for any liability or other obligation of Dettmers or any affiliate thereof of any kind, nature or description, whether such liability or obligation is mature or not, liquidated or unliquidated, fixed or contingent, known or unknown, whether arising out of occurrences prior to, at or after the date of this Agreement, including without limitation, those arising from the current employment and compensation arrangements of Dettmers through Staff Leasing for the staff of Dettmers, breach of contract, breach of any warranty, infringement, fraud, violation of any law, rule or regulation, or out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim or other demand. 5. COVENANTS. 5.1 COVENANTS OF BUYER. 5.1.1 PAYMENT AND PERFORMANCE OF ASSUMED LIABILITIES. From and after the Closing Date, Buyer shall pay and perform the liabilities assumed pursuant to Section 4.1 in the ordinary course of its business in accordance with Buyer's standard business practices. 5.1.2 HOLD HARMLESS. DAH and Buyer agree to indemnify and hold harmless Dettmers and the Dettmers Shareholders from any liabilities to third parties arising from the operations or business of Dettmers on and after the consummation of the transactions contemplated herein on the Closing Date, except to the extent caused by the actions, gross negligence or willful misfeasance of Dettmers. 5.1.3 DUTY TO COLLECT ACCOUNTS RECEIVABLE . Buyer and DAH shall use their best efforts to collect accounts receivable outstanding at the Closing Date. As used in this Section 4.1.7, "best efforts" shall be deemed to have been used so long as Buyer continues the accounts receivable collection practices used by Dettmers prior to the date of this Agreement. 5.1.4 EMPLOYEES. From and after the Closing Date, Buyer and DAH shall employ substantially all of the current employees of Staff Leasing assigned to Dettmers, subject to normal management prerogatives to review performance and terminate employment as necessary or 17 appropriate for the business. The Buyer and DAH shall compensate such employees at substantially the same level of compensation in effect for such employees. Buyer and DAH will continue normal fringe benefits for such employees subject to the integration of such fringe benefits with Buyer's and DAH's current programs. 5.2 COVENANTS OF DETTMERS. 5.2.1 CONDUCT OF BUSINESS OF DETTMERS PRIOR TO CLOSING DATE. Dettmers agrees that on and after the date hereof and prior to the Closing Date: (a) The business and operations, activities and practices of Dettmers shall be conducted only in the ordinary course of business and consistent with past practice; (b) No change shall be made in the articles of incorporation or bylaws of Dettmers. (c) No change shall be made in the number of shares of authorized or issued capital stock of Dettmers; nor shall any option, warrant, call, right, commitment or agreement of any character be granted or made by Dettmers relating to its equity; (d) Dettmers shall not, directly or indirectly, solicit or encourage (including by way of furnishing any non-public information concerning the business, properties or assets of Dettmers), or enter into any negotiations or discussions concerning, any Acquisition Proposal (as defined below). Dettmers shall notify Buyer promptly by telephone, and thereafter promptly confirm in writing, if any such information is requested from, or any Acquisition Proposal is received by Dettmers. As used in this Agreement, "Acquisition Proposal" shall mean any proposal received by Dettmers or any officer or director thereof prior to the Closing Date for a merger or other business combination involving Dettmers, or for the acquisition of, or the acquisition of a substantial equity interest in, or any material part of the assets of Dettmers, other than the one contemplated by this Agreement. (e) Except as set forth in Schedule 5.2.1(e), Dettmers will not: (i) incur, become subject to, or suffer, or agree to incur, become subject to or suffer, any obligation or liability (absolute or contingent) except current liabilities incurred, and obligations under contracts entered into, in the ordinary course of business; (ii) discharge or satisfy any lien or encumbrance or pay any obligation or liability (absolute or contingent) other than liabilities payable in the ordinary course of business; (iii) mortgage, pledge or subject to lien, charge or any other encumbrance, any of the Property or agree so to do; (iv) sell or transfer or agree to sell or transfer any of its assets, or cancel or agree to cancel any debt or claim, except in each case in the ordinary course of business; (v) consent or agree to a waiver of any right of substantial value; (vi) enter into any transaction other than in the ordinary course of its business; (vii) terminate any contract, agreement, license or other instrument to which it is a party; (viii) through negotiation or otherwise, make any commitment or incur any liability or obligation to any labor organization; (ix) without the express written consent of Buyer, make or agree to make any accrual or arrangement for, or payment of bonuses or special compensation of any kind, or any severance or termination pay, to any employee; 18 (x) introduce any new method of management, operation or accounting with respect to its business or any of the assets, properties or rights applicable thereto; (xi) offer or extend more favorable prices, discounts or allowances than were offered or extended regularly on and prior to March 31, 1998 other than in the ordinary course of business; (xii) make capital expenditures or commitments therefor without the express written consent of Buyer; or (xiii) hire any new employee other than replacements for open positions reflected in the March 31, 1998 Financial Statements. (f) Dettmers will use its best efforts to preserve Dettmers' business organization intact, to keep available to Dettmers the present service of Dettmers' employees, and to preserve for Dettmers the good will of its suppliers, customers and others with whom business relationship exist; and (g) Dettmers will not take, agree to take or permit to be taken, any action or do or permit to be done anything in the conduct of the business of Dettmers, or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement or which would cause any of the representations or warranties of Dettmers or the Dettmers Shareholders contained herein to be or become untrue in any material respect. 5.2.2 INSPECTION OF BOOKS AND RECORDS. From the date of this Agreement until the Closing Date, Dettmers shall make or cause to be made available to Buyer for examination, the Property and other materials such as books of account, contracts, agreements, commitments, records and its documents, and shall permit Buyer and its representatives, attorneys, accountants and agents to have access to and to copy, at Buyer's expense, the same at all reasonable times. In addition, Dettmers shall make, or cause to be made available to Buyer and its representatives, attorneys, accountants and agents, the Property and all of the above described records for any environmental compliance audit, any environmental site assessment (including soil, groundwater and/or other testing) and any other physical inspection which Buyer may elect to conduct at its own expense. 5.2.3 FURTHER ASSURANCES. On and after the Closing Date, the Dettmers Shareholders and Dettmers officers, directors and agents each shall prepare, execute and deliver such further instruments of conveyance, sale, assignment or transfer, and shall take or cause to be taken such other or further action as Buyer shall reasonably request at any time or from time to time in order to perfect, confirm or evidence in Buyer title to all or any part of the Property or to consummate, in any other manner, the terms and conditions of this Agreement. 5.2.4 PRESS RELEASES AND ANNOUNCEMENTS. Neither Dettmers nor the Dettmers Shareholders shall make any press release or announcement regarding the transaction contemplated herein without the prior written approval of Buyer or DAH, other than in conjunction with a press release or announcement issued by Buyer or DAH, which Buyer or DAH shall be permitted to make without the prior written approval of the other parties hereto; PROVIDED, HOWEVER that Dettmers, the Dettmers Shareholders, Buyer or DAH may make any public disclosure he or it believes in good faith is required by law (in which case he or it will advise the other parties hereto prior to making the disclosure). On the Closing Date, Buyer and DAH will issue public announcements and/or press releases announcing the transaction contemplated by this Agreement. 5.2.5 BANKRUPTCY. Dettmers agrees that on and after the date of this Agreement (i) Dettmers shall not commence any case, proceeding or other action (A) under any existing or 19 future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to any of them or seeking to adjudicate any of them bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to any of them or for all or any substantial part of any of their assets; (ii) Dettmers shall not make a general assignment for the benefit of its creditors; (iii) no case, proceeding or other action of a nature referred to in clause (i) above shall be commenced by any person which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or discharged for a period of 60 days; (iv) no case, proceeding or other action shall be commenced by any person seeking issuance of a warrant of attachment, execution distraint or similar process against all or any substantial part of the assets of Dettmers which results in the entry of an order for any such relief; and (v) Dettmers shall not take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), (iii), or (iv) above. 5.2.6 TRADE SECRETS AND CONFIDENTIAL KNOW-HOW. Between the date hereof and the Closing Date, Dettmers and its agents, officers and employees shall, upon request by Buyer, reduce to writing all trade secret information or other know-how of a business or technical nature which is now used in or which is useful for the present or anticipated future business of Dettmers, such writing to be confidential and afforded such protection and confidential treatment as Buyer shall reasonably request. 5.2.7 INDEMNITY REGARDING BULK SALES, ETC. The Dettmers Shareholders hereby agree to indemnify and hold harmless DAH and Buyer from any claims, costs or losses incurred as a result of the failure of Dettmers to comply with any and all requirements of sales tax and bulk sales laws and regulations arising under applicable state law in connection with the transactions contemplated by this Agreement. 5.2.8 WARRANTY WORK AFTER CLOSING DATE. To the extent that such costs exceed $25,000 per year for Buyer's costs incurred in respect of any warranty work completed by Buyer pursuant to its liabilities assumed under Section 4.1.6, the Dettmers Shareholders, by a reduction of amounts payable to Dettmers or Dettmers Shareholders pursuant to the terms of this Agreement, shall reimburse Buyer for Buyer's actual direct cost of material and labor incurred in respect of any warranty work 5.2.9 HOLD HARMLESS. The Dettmers Shareholders agree to indemnify and hold harmless DAH and Buyer from any liabilities to third parties arising from the operations or business of Dettmers at any time prior to the consummation of the transactions contemplated herein on the Closing Date, except to the extent caused by the actions, gross negligence or willful misfeasance of DAH or Buyer; provided, however, the indemnity with respect to Warranty work set forth in Section 5.2.8 shall be limited to amounts otherwise payable to Dettmers or Dettmers Shareholders pursuant to this Agreement. 5.2.10 USE OF NAME/DISSOLUTION OF SELLER. Immediately upon the Closing, Dettmers shall (a) change its name to a name which does not include the name "Dettmers", (b) not use any name, mark, logo or design included in the Assets, and (c) provide to DAH and Buyer such evidence of the foregoing as either from time to time may reasonably request. In the event that the Dettmers Shareholders and Dettmers decide to dissolve Dettmers post transaction, then a certificate of dissolution shall be delivered to Buyer and DAH upon Dettmers receipt of same. A certified copy of a certificate of dissolution shall constitute adequate evidence for DAH and Buyer to make any further payments called for in this Agreement directly to the Dettmers Shareholders in such proportion as the Dettmers Shareholders direct in writing. 20 6. CLOSING AND CONDITIONS PRECEDENT. 6.1 CLOSING DATE. The date upon which the transactions contemplated hereby shall become effective (the "Closing Date") shall be the date, no later than June 30, 1998, upon which each of the conditions precedent set forth in Sections 6.2 and 6.3 shall have been satisfied or waived pursuant to the respective terms thereof. 6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF DAH AND BUYER. Each and every obligation of DAH and Buyer to be performed on the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions (unless waived in writing by DAH and Buyer): 6.2.1 Dettmers shall have delivered to Buyer each of the following, in each case duly and properly executed (if appropriate) and in form and substance reasonably satisfactory to the Buyer: (a Good and sufficient assignments of each Real Property Lease, conveying all of Dettmers' right, title and interest in and to such Real Property Lease, free and clear of all mortgages, pledges, liens, security interests, encumbrances, restrictions and claims of any nature whatsoever, except those listed as permitted exceptions on Schedule 6.2.1(a); together with recordable memoranda thereof if requested by Buyer. (b Written consents of the lessors under each Real Property Lease, to the assignment of each such Real Property Lease, with no adverse condition attached, and estoppel and non-disturbance agreements of such lessors. (c A good and sufficient General Conveyance, Assignment and Bill of Sale, conveying, selling, transferring and assigning to Buyer title to all of the Property free and clear of all security interests, liens, charges, encumbrances or equities whatsoever, except those listed as permitted exceptions on Schedule 6.2.1(c); and Motor Vehicle Certificates of Title to each of the Vehicles, endorsed for transfer to Buyer. (d The persons listed on Schedule 6.2.1(d) shall have executed and delivered Employment Agreements to DAH and Buyer in the form of EXHIBIT A attached hereto. (e Good and sufficient assignments of each of the Personal Property Leases and each of the Contracts, in each case together with the written consents of all parties necessary in order to transfer all of Dettmers' rights thereunder to Buyer. (f Copies of each of the Permits, together with evidence satisfactory to Buyer that the same are in full force and effect, and (to the extent requested by Buyer) evidence that such permits are eligible for immediate transfer to Buyer. (g The books and records described in Section 3.2.20; each of the Financial Statements described in Section 3.2.4; [the Second Quarter Financial Statements to be delivered pursuant to Section 4.2.10;] the tax returns described in Section 3.2.29, together with evidence satisfactory to the Buyer of the payment by Dettmers of all amounts due to the relevant taxing authorities pursuant thereto; and each policy of insurance described in Section 3.2.26, together with evidence that such policies are in force on the Closing Date. (h Evidence satisfactory to DAH and Buyer and their counsel that the execution and delivery of this Agreement has been authorized by Dettmers. (i A favorable opinion of counsel for Dettmers, addressed to Buyer and DAH and dated the Closing Date, as to the matters set forth in Sections 3.2.1, 3.2.2 and 3.2.3 hereof and such other matters as Buyer or DAH may reasonably request. 21 (j The Articles of Incorporation of Dettmers, certified as of a recent date by the Secretary of State of Delaware. (k The Bylaws of Dettmers, certified as true and complete by the Corporate Secretary of Dettmers. (l Certificates of the Secretaries of State of Delaware and Florida, each dated as of a date not earlier than ten days prior to the Closing Date, as to the good standing of Dettmers in such States (and, in Delaware, the payment of all corporate franchise taxes), together with facsimile confirmation of such good standing on the Closing Date. (m An affidavit of the Chief Executive Officer or Chief Financial Officer of Dettmers stating that Dettmers is not a foreign seller within the meaning of the Internal Revenue Code of 1986, as amended, and such other evidence of domestic ownership as may be required or reasonably deemed advisable by Buyer in any state or local jurisdiction where the Property is located. (n Such other consents as Buyer deems necessary or desirable in order to consummate the transactions contemplated herein. (o Such other separate instruments of sale, assignment or transfer that Buyer may reasonably deem necessary or appropriate in order to perfect, confirm or evidence title to all or any part of the Property. (p A general release in a form acceptable to Buyer and DAH from Michael Dettmers regarding his prior ownership of Dettmers shares. (q Evidence of a written termination, in a form acceptable to DAH and Buyer, of the Commercial Lease dated December 18, 1996 between Andrew Perl and Peter Dettmers and Dettmers Industries Inc. with respect of the Real Property leased at 3190 S. E. Slater Street, Stuart, Florida. 6.2.2 In its sole judgment and discretion, DAH shall be satisfied with the compensation plan of Dettmers for all employees and the termination of (i) the provisions of the Dettmers Employee Handbook and (ii) the existing compensation program which provides incentives to all employees. 6.2.3 In its sole judgment and discretion, (i) DAH shall be satisfied with the completion of its due diligence review of the business and operations of Dettmers, and (ii) DAH shall have obtained the consent of its senior lender as to the transaction contemplated by this Agreement. 6.2.4 DAH and Buyer shall have the right, but shall have no obligation to close and make the final $2,100,000 payment, or any other payment not already made, in the event that Dettmers has not, prior to the Closing Date, received a firm Purchase Order which sets forth schedule, quantity and unit price from Raytheon E-Systems for Dettmers products on Boeing Business Jets, as more fully described in Raytheon's letter to Dettmers dated May 29, 1998. 6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF DETTMERS. Each and every obligation of Dettmers and the Dettmers Shareholders to be performed on the Closing Date shall be subject to the satisfaction on or before the Closing Date of each of the following conditions (unless waived in writing by Dettmers): The Buyer shall have delivered to Dettmers each of the following, in each case duly and properly executed (if appropriate) and in form and substance reasonably satisfactory to Dettmers: 6.3.1 Payment of the amounts required to be paid pursuant to Section 2, in immediately available funds on the Closing Date. 22 6.3.2 Resolutions of the directors of Buyer and DAH authorizing the execution and delivery of this Agreement by Buyer and DAH respectively, and the performance of their respective obligations hereunder, certified by the Corporate Secretaries of Buyer and DAH, respectively. 6.3.3 A favorable opinion of counsel for Buyer and DAH, addressed to Dettmers and dated the Closing Date, as to the matters set forth in Sections 3.1.1 and 3.1.2 hereof. 6.3.4 The Assumption Agreement with respect to the Assumed Liabilities, in the form of EXHIBIT B attached hereto. 6.3.5 Delivery by Buyer of an indemnity agreement which indemnifies the Dettmers Shareholders against any claims made by third parties under their personal guarantees as set forth in the Commercial Lease dated December 12, 1996 regarding the real property located at 3190 S. E. Slater Street, Stuart, Florida (the "3190 Lease"). The indemnity provided to the Dettmers Shareholders is only with respect of claims and occurrences relating to the 3190 Lease that occur after the transactions contemplated hereby are consummated, and is given in connection with Buyer's assumption of the 3190 Lease. 7. MISCELLANEOUS PROVISIONS. 7.1 NOTICES. All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made if made in writing, and (i) if served by personal delivery to the party for whom intended (which shall include overnight delivery by Federal Express or similar service), to the address provided for such party set forth below, or such other address as may be designated by writing hereafter by such party, or (ii) if sent by telecopy to the number set forth below, or such other number as may be designated in writing hereafter by such party and immediately confirmed by sending a copy of such notice by either method described in clause (i) above: If to Buyer/DAH: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Ave., Suite 180 El Segundo, California Attn: R. Jack DeCrane Fax: (310) 643-0746 With copies to: Stephen A. Silverman, Esq. Spolin & Silverman 100 Wilshire Blvd., Suite 940 Santa Monica, CA 90401 Fax: (310) 576-4844 If to Dettmers or Dettmers Shareholders: Andrew Perl Peter Dettmers Dettmers Industries 3081 S.E. Slater Street Stuart. Florida 34997 Fax: (561) 288-7295 With copies to: James P. Covey, Esq. 1111 S. Federal Highway, Suite 300 Stuart, Florida 34994 Fax: (561)286-1505
23 7.2 ARBITRATION. Any dispute, claim or controversy arising out of or relating to this Agreement or any breach thereof shall be decided by arbitration conducted in Miami, Florida before a single arbitrator in an arbitration proceeding otherwise conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association and which arbitration provides for reasonable discovery, including depositions, interrogatories and production of documents. The decision of the arbitrator shall be final and binding on the parties and such decision shall be enforceable as a judgment in any court of competent jurisdiction. The cost of arbitration shall be shared equally between the parties. 7.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, and the documents referred to herein and therein, embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, relative to said subject matter. 7.4 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and obligations arising hereunder shall inure to the benefit of and be binding upon Dettmers, its successors and permitted assigns, Buyer and DAH, their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party or parties, except that Buyer shall have the right to assign, in whole or in part, its rights hereunder to one or more affiliates of Buyer, which in each case shall be a wholly-owned subsidiary of Buyer. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 7.5 CAPTIONS. The Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 7.6 WAIVER; CONSENT. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any condition of this Agreement or breach by the other party of any of its obligations or representations hereunder or thereunder shall be deemed to be a waiver of any other condition or subsequent or prior breach of the same or any other obligation or representation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. 7.7 NO THIRD PARTY BENEFICIARIES. Subject to Section 7.4, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto, any rights, remedies or other benefits under or by reason of this Agreement. 7.8 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 7.9 SEVERABILITY. With respect to any provision of this Agreement finally determined to be unenforceable, Dettmers, the Dettmers Shareholders, DAH and Buyer hereby agree that such court or arbitrator(s) shall have jurisdiction to reform such provision so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's or arbitrator(s)' determination. In the event that any such provision cannot be reformed, such provision shall be 24 deemed to be severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 7.10 GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the State of Delaware, with venue in Miami, Florida. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. DETTMERS INDUSTRIES, INC., DECRANE AIRCRAFT HOLDINGS, INC. a Delaware corporation By: By: DETTMERS SHAREHOLDERS DAHX ACQUISITIONS, INC. PETER DETTMERS By: ANDREW PERL
25 EX-10.1 4 CONSENT AND AMENDMENT NO. 3 EXHIBIT 10.1 CONSENT AND AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT This Consent and Amendment No. 3 to Loan and Security Agreement (this "Amendment") is made as of May 29, 1998, among DeCrane Aircraft Holdings, Inc., a Delaware corporation ("Borrower"), Bank of America National Trust and Savings Association, successor-by-merger to Bank of America Illinois, individually as a lender ("BoA") and as agent ("Agent"), Comerica Bank--California ("Comerica"), Mellon Bank, N.A. ("Mellon"), and Sumitomo Bank of California ("Sumitomo"; Sumitomo, BoA, Comerica and Mellon being collectively referred to as "Lenders"). Reference is made to that certain Loan and Security Agreement dated as of April 15, 1997 among Borrower, Agent and Lenders (as amended or otherwise modified from time to time, the "Loan Agreement"; capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Loan Agreement). Borrower has requested that Requisite Lenders consent to the acquisition (the "Avtech Acquisition") by Borrower of not less than 99.44% of the outstanding capital stock of Avtech Corporation, a Washington corporation ("Avtech"). Absent the written consent of Requisite Lenders, consummation of the Avtech Acquisition would cause a breach of each of SECTIONS 5.11 and 5.17 of the Loan Agreement. Borrower has also requested that all of the Lenders agree to amend the Loan Agreement in certain respects. NOW, THEREFORE, Agent, Lenders and Borrower agree as follows: 1. CONSENT. Subject to the conditions precedent set forth in Section 2 of this Amendment, Lenders hereby consent to the consummation of the Avtech Acquisition. This consent shall not constitute (a) a modification or alteration of the terms, conditions or covenants of the Loan Agreement or any document entered into in connection therewith, or (b) a waiver, release or limitation upon the exercise by Agent or any Lender of any of its rights, legal or equitable, hereunder. Except as set forth above, Agent and each Lender reserves any and all rights and remedies which it has had, has or may have under the Loan Agreement. 2. AVTECH ACQUISITION CONDITIONS PRECEDENT. The consent of the Lenders to the consummation of the Avtech Acquisition shall become effective as of the date of this Amendment upon the satisfaction of the following conditions precedent: 2.1. Borrower shall have delivered to Agent a manually executed original of this Agreement; 2.2. The terms of the Avtech Acquisition shall be no less favorable to the Borrower from those set forth in a draft Stock Purchase Agreement concerning the Avtech Acquisition delivered to counsel to Agent with a draft date of May 13, 1998. In furtherance, and not by way of limitation, of the foregoing: 2.2.1. The aggregate purchase price of the Avtech Acquisition shall not exceed $83,000,000 PLUS cash and cash equivalents of Avtech and minus indebtedness for borrowed money of Avtech; and 2.2.2. The Avtech Acquisition shall be consummated on or prior to July 7, 1998. 2.3. No Event of Default or Unmatured Event of Default shall be in existence at the time of the consummation of the Avtech Acquisition, or would be caused after giving effect thereto; 2.4. Agent and Lenders shall have completed an environmental due diligence review of Avtech, and shall be satisfied with the results thereof; 2.5. Agent and Lenders shall have received an executed copy of the purchase agreement between the Borrower and the current shareholders of Avtech (the "Purchase Agreement"), and Agent and 1 Lenders shall be satisfied with the terms and conditions thereof, including without limitation the representations, warranties and indemnities made therein in favor of the Borrower; 2.6. Agent shall have received (i) executed copies of all additional agreements, documents and instruments pertaining to the consummation of the Avtech Acquisition (collectively with the Purchase Agreement, the "Avtech Acquisition Documents") and (ii) a collateral assignment executed by the Borrower, in form and substance acceptable to Agent, of all representations, warranties, covenants and other agreements (including indemnification agreements) made in favor of the Borrower under the Avtech Acquisition Documents, for the benefit of the Agent, the Lenders and Issuer; 2.7. Agent, for the benefit of itself, Issuer and the Lenders, shall have received (i) a guaranty executed by Avtech in form substantially similar to guaranties previously executed by the presently existing Subsidiaries of the Borrower in connection with the execution of the Loan Agreement, (ii) first priority Liens on the stock and assets of Avtech, granted pursuant to (x) a certain Pledge Agreement dated as of April 15, 1997 executed by Borrower in favor of Agent and (y) a security agreement in form substantially similar to security agreements previously executed by the presently existing Subsidiaries of the Borrower in connection with the execution of the Loan Agreement and (iii) such opinions of legal counsel, stock certificates, insurance certificates, insurance endorsements and assignments, certificates, articles of incorporation, good standing certificates and other agreements, instruments and documents as reasonably requested by Agent, each in form and substance reasonable acceptable to Agent; 2.8. The board of directors of Avtech shall have approved the consummation of the Avtech Acquisition; 2.9. Agent shall have received a certificate from Borrower's chief executive officer, president or chief financial officer (i) certifying that all of conditions precedent set forth in Section 2 of this Amendment have been satisfied and (ii) containing a computation of, and showing compliance with, each of SECTIONS 5.24, 5.25, 5.26, 5.27 and 5.28 of the Loan Agreement after giving effect to the Avtech Acquisition and the amendments set forth herein, together with such financial information as Requisite Lenders shall request to verify such compliance; 2.10. There shall not have been instituted or threatened any litigation or proceeding in any court or administrative forum adversely concerning or affecting the consummation of the Avtech Acquisition; 2.11. Agent shall have received evidence reasonably acceptable to Agent that the Borrower has received all permits, consents and regulatory approvals necessary to consummate the Avtech Acquisition; 2.12. Avtech shall have incurred no material liabilities, contingent or otherwise, other than as disclosed on Avtech's most recently audited financial statements, copies of which shall have been delivered to Agent; 2.13. Between the date of this Amendment and the consummation of the Avtech Acquisition, no event, circumstance or condition shall have occurred or exist which has a Material Adverse Effect; and 2.14. Between September 30, 1997 and the consummation of the Avtech Acquisition (i) no event, circumstance or condition shall have occurred or exist which has a material adverse effect upon the condition (financial or otherwise), operations, performance or properties of Avtech and (ii) Avtech shall have neither created nor acquired any Subsidiary. 2 3. AMENDMENTS TO LOAN AGREEMENT. Subject to the conditions precedent set forth in Section 4 of this Amendment, the Loan Agreement is hereby amended as follows: 3.1. The first row of the table set forth under the definition of "Applicable Margin" in SECTION 1.1 of the Loan Agreement is hereby amended and restated as follows:
APPLICABLE IBOR APPLICABLE BASE MARGIN FOR THE MARGIN FOR THE APPLICABLE NON-USE LEVERAGE RATIO REVOLVING LOANS REVOLVING LOANS FEE MARGIN - ----------------------------------------------------------- ------------------- ----------------- ------------------- Greater than 3.00:1.00..................................... 2.25% 1.00% 0.425% Greater than or equal to 2.50:1.00, but less than 3.00:1.00................................................ 2.00% 0.75% 0.375%
3.2. The definition of the term "Maximum Revolving Loan Amount" in SECTION 1.1 of the Loan Agreement is hereby amended by adding the following sentence to the end of such definition: "Upon the satisfaction of the conditions precedent set forth in that certain Amendment No. 3 to Loan and Security Agreement dated as of May 29, 1998 among Borrower, Agent and Lenders ("Amendment No. 3"), and notwithstanding anything to the contrary contained in this definition, each Lender's then existing Maximum Revolving Loan Amount shall automatically reduce by such Lender's Pro Rata Share (determined immediately prior to the applicability of this sentence with respect to any Lender for any applicable date) of the sum of (x) without duplication, the aggregate net proceeds of Indebtedness permitted under SECTION 5.14(B), not to exceed $45,000,000, PLUS (y) the Step-Down Amount. For purposes of this definition and the definition of the term "Revolving Credit Amount", the "Step-Down Amount" shall mean (x) $500,000 on the last day of each calendar month for the period commencing on October 31, 1998 and ending on May 31, 1999 and (y) $1,000,000 on the last day of each calendar month commencing on June 30, 1999." 3.3. The definition of the term "Revolving Credit Amount" in SECTION 1.1 of the Loan Agreement is hereby amended and restated as follows: "Revolving Credit Amount" means the maximum amount of Revolving Loans which Lenders will make available to Borrower. Prior to the satisfaction of the conditions precedent set forth in Amendment No. 3, the Revolving Credit Amount shall be equal to $75,000,000. Upon the satisfaction of the conditions precedent set forth in Amendment No. 3, the Revolving Credit Amount shall be equal to $105,000,000, subject to automatic reduction by the sum of (x) without duplication, the aggregate net proceeds of Indebtedness permitted under SECTION 5.14(B), not to exceed $45,000,000, plus (y) the Step-Down Amount. The Revolving Credit Amount shall be subject to reduction pursuant to SECTION 2.1.2." 3.4. The clause "Four Million Five Hundred Thousand Dollars ($4,500,000)" set forth twice in SECTION 5.24 of the Loan Agreement is hereby amended and restated in each instance to read "Five Million Five Hundred Thousand Dollars ($5,500,000)". 3.5. SECTION 5.25 is hereby amended and restated as follows: "5.25 MINIMUM WORKING CAPITAL RATIO. 3 Not permit the Working Capital Ratio as of the last day of each calendar quarter ending during the periods (inclusive) set forth below to be less than the amount set forth opposite such period:
PERIOD AMOUNT - ------------------------------------------------------------------------------------- ----------- June 30, 1997 through September 30, 1999............................................. .20 December 31, 1999 and the last day of each calendar quarter thereafter............... .33
3.6. The ratio "3.00:1.00" set forth in the first row of the table set forth in SECTION 5.27 is hereby amended and restated to read "3.50:1.00". 3.7. The Maximum Revolving Loan Amount of each Lender shall be amended and restated as set forth on the signature pages to this Amendment. 4. AMENDMENT CONDITIONS PRECEDENT. The amendments to the Loan Agreement set forth in Section 3 of this Amendment shall become effective as of the date of this Amendment upon the satisfaction of the following conditions precedent: 4.1. The Avtech Acquisition shall have been consummated on or prior to July 7, 1998, and in accordance with the terms of the Avtech Acquisition Documents and applicable law; 4.2. Borrower shall have executed and delivered to Agent for distribution to the Lenders amended and restated Revolving Credit Notes in form and substance substantially similar to Revolving Credit Notes previously executed by the Borrower in connection with the execution of the Loan Agreement, each in an amount equal to each Lender's Maximum Revolving Loan Amount; 4.3. The Subsidiaries of Borrower (other than Avtech) shall have executed and delivered a certain Reaffirmation of Guaranties, in the form of EXHIBIT A to this Amendment; 4.4. No Event of Default or Unmatured Event of Default shall have occurred and be continuing; 4.5. Borrower shall have delivered to Agent a certificate in form and substance satisfactory to Agent of Borrower's Secretary or an Assistant Secretary as to Borrower's certificate of incorporation and by-laws, the incumbency of Borrower's officers and corporate resolutions adopted by Borrower's board of directors with respect to this Amendment; 4.6. Agent shall have received an opinion of Borrower's legal counsel, in form and substance substantially similar to a legal opinion delivered by such counsel to Agent in connection with the execution and delivery of the Loan Agreement; 4.7. Agent shall have received on or prior to the date hereof an amendment fee (the "Amendment Fee") in the amount of $131,250, for further distribution to the Lenders based on the amounts set forth below each Lender's signature hereto; and 4.8. Agent shall have received on or prior to the date hereof, for its own account, a fee in respect of the transactions contemplated hereby as set forth in a certain letter agreement of even date herewith between Agent and Borrower. 5. LOAN REALLOCATION. Effective immediately upon satisfaction of the conditions precedent set forth in each of Sections 2 and 4, (i) Sumitomo shall be deemed automatically to have sold and assigned to BoA, without recourse and without representation and warranty, and BoA shall be deemed automatically to have purchased and assumed from Sumitomo, that interest in Revolving Loans funded by Sumitomo immediately prior to the satisfaction of such conditions precedent so that, after giving effect to such purchase and sale, the ratio of the amount of Revolving Loans funded by each Lender to the aggregate outstanding amount of Revolving Loans equals such Lender's Pro Rata Share after giving effect to the 4 amendments contemplated by this Amendment and (ii) BoA shall wire transfer to Sumitomo immediately available funds in full satisfaction of the purchases and sales contemplated by the preceding clause (i). 6. COVENANT. Borrower covenants and agrees that Borrower shall (i) acquire (either pursuant to stock purchase, statutory reverse stock split or merger of Avtech into a wholly-owned Subsidiary of Borrower), within 30 days of the effective date of the Avtech Acquisition, 100% of the outstanding capital stock of Avtech not acquired by Borrower in connection with the Avtech Acquisition (the "Follow-Up Acquisition") and (ii) deliver to Agent evidence reasonably acceptable to Agent of the consummation of the Follow-Up Acquisition, together with such additional documents, agreements, instruments and legal opinions reasonably requested by Agent in connection with the consummation of the Follow-Up Acquisition. Borrower acknowledges and agrees that a breach of any of the foregoing covenants and agreements shall constitute an Event of Default. 7. MISCELLANEOUS. 7.1. EXPENSES. Borrower agrees to pay on demand all costs and expenses of Agent (including Attorneys' Fees) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. In addition, Borrower agrees to pay, and save Agent and each Lender harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Amendment, the borrowings under the Loan Agreement, as amended hereby, and the execution and delivery of any instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided in this SECTION 7.1 shall survive any termination of this Amendment or the Loan Agreement as amended hereby. 7.2. GOVERNING LAW. This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois. 7.3. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. 7.4. REFERENCE TO LOAN AGREEMENT. Except as herein amended, the Loan Agreement shall remain in full force and effect and is hereby ratified in all respects. On and after the effectiveness of the amendments to the Loan Agreement accomplished hereby, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference to the Loan Agreement in any note and in any Related Agreements, or other agreements, documents or other instruments executed and delivered pursuant to the Loan Agreement, shall mean and be a reference to the Loan Agreement, as amended by this Amendment. 7.5. SUCCESSORS. This Amendment shall be binding upon Borrower, each Lender, Agent and their respective successors and assigns, and shall inure to the benefit of Borrower, each Lender, Agent and their respective successors and assigns. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered at Chicago, Illinois as of the date first above written. DECRANE AIRCRAFT HOLDINGS, INC., as Borrower By ------------------------------------------ Its ------------------------------------------ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, successor-by-merger to Bank of America Illinois, as Agent By ------------------------------------------ Its ------------------------------------------ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, successor-by-merger to Bank of America Illinois, as a Lender By ------------------------------------------ Its ------------------------------------------ Maximum Revolving Loan Amount: $42,600,000 Share of Amendment Fee: $59,250 COMERICA BANK--CALIFORNIA, as a Lender By ------------------------------------------ Its ------------------------------------------ MELLON BANK, N.A., as a Lender By ------------------------------------------ Its ------------------------------------------ Maximum Revolving Loan Amount: $25,200,000 Share of Amendment Fee: $31,500 SUMITOMO BANK OF CALIFORNIA, as a Lender By ------------------------------------------ Its ------------------------------------------ Maximum Revolving Loan Amount: $12,000,000 Share of Amendment Fee: $9,000
6 EXHIBIT A REAFFIRMATION OF GUARANTIES , 1998 Bank of America National Trust and Savings Association, individually and as agent ("Agent") Comerica Bank--California Mellon Bank, N.A. Sumitomo Bank of California Ladies and Gentlemen: Each of the undersigned has executed and delivered to Agent, for your collective benefit, a certain Guaranty dated as of April 15, 1997 (November 14, 1997, in the case of Audio International, Inc. and Audio International Sales, Inc.) (each, a "Guaranty"). Each of the undersigned acknowledges receipt of copies of (i) that certain Consent and Amendment No. 3 to Loan and Security Agreement of even date herewith between you and DeCrane Aircraft Holdings, Inc. (the "Amendment") and (ii) each additional instrument, agreement and document required to be delivered to any of you pursuant to the terms of the Amendment (the "Additional Documents"). Each of the undersigned hereby reaffirms the validity of the Guaranty executed by such entity and its obligations thereunder, in each case after giving effect to the execution and delivery of the Amendment and the Additional Documents, and the consummation of the transactions contemplated thereby. AEROSPACE DISPLAY SYSTEMS, INC. CORY COMPONENTS, INC. ELSINORE AEROSPACE SERVICES, INC. ELSINORE ENGINEERING, INC. HOLLINGSEAD INTERNATIONAL, INC. TRI-STAR ELECTRONICS INTERNATIONAL, INC. Each By ---------------------------------------- Its ---------------------------------------- AUDIO INTERNATIONAL, INC. AUDIO INTERNATIONAL SALES, INC. Each By ---------------------------------------- Its ----------------------------------------
7 EX-99.2 5 PRESS RELEASE JUNE 26, 1998 EXHIBIT 99.2 DECRANE AIRCRAFT HOLDINGS, INC. 2361 Rosecrans Ave., Suite 180 El Segundo, CA 90245 TRADED: NASDAQ: DAHX
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD: Robert A. Rankin Karen Taylor Moira Conlon Michaelle Burstin Chief Financial Officer General Information Investor/Analyst Contact Media Contact (310) 725-9123 (310) 442-0599 (310) 442-0599 (310) 442-0599
FOR IMMEDIATE RELEASE JUNE 26, 1998 DECRANE CLOSES ACQUISITION OF AVTECH EL SEGUNDO, CA, JUNE 26, 1998--DeCrane Aircraft Holdings, Inc. (NASDAQ: DAHX), a leading manufacturer of avionics components and an avionics systems integrator for the commercial and high-end corporate aircraft industry, today announced the closing of the previously announced acquisition of Avtech Corporation, a Seattle, Washington provider of electronic systems for the aerospace industry. Terms of the transaction were undisclosed. DeCrane Chairman and Chief Executive Officer R. Jack DeCrane, stated, "Acquiring Avtech further demonstrates our ability to enhance our growth through acquisitions that considerably complement our current business mix. Among other strategic and financial benefits, Avtech extends DeCrane's product and service franchise in cockpit audio and communications, lighting, and power and control areas, as well as strengthens our competitive standing in the original equipment market, retrofit market and the aftermarket. Avtech, founded in 1963, is well-known as a leader in the design, development and manufacture of electronic systems for the aerospace industry. Serving over 450 customers in 49 countries, Avtech products are supplied to commercial, business, regional and commuter aircraft manufacturers and the leading avionics manufacturers. An innovator in the aviation field, noteworthy achievements by Avtech include introducing several new technologies to aircraft, namely: the Digitally Controlled Audio Systems for the corporate market, commuter market and Boeing; Electronic Ballasts; the Airborne Fax Machine; and the Active Harmonic Filter. Except for historical information contained herein, this document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that may cause the Company's actual results or outcomes to be materially different from those anticipated and discussed herein. Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by regulatory and other factors beyond the Company's control. Important factors that the Company believes might cause such differences are discussed in the cautionary statements accompanying the forward-looking statements in the Company's reports filed with the Securities and Exchange Commission. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in those filings with the Securities and Exchange Commission. DeCrane Aircraft Holdings, Inc. is a leading manufacturer of avionics components and a provider of avionics systems integration services in certain niche markets of the commercial aircraft and high-end corporate jet industries. The Company's products and services typically are utilized to provide an interface between an aircraft and its avionic systems. For more information about DeCrane Aircraft Holdings, Inc. via facsimile simply call 1-800-PRO-INFO and dial client code "DAHX". EX-99.3 6 PRESS RELEASE JULY 1, 1998 EXHIBIT 99.3 DECRANE AIRCRAFT HOLDINGS, INC. 2361 Rosecrans Ave., Suite 180 El Segundo, CA 90245 TRADED: NASDAQ: DAHX
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD: Robert A. Rankin Karen Taylor Moira Conlon Michaelle Burstin Chief Financial Officer General Information Investor/Analyst Contact Media Contact (310) 725-9123 (310) 442-0599 (310) 442-0599 (310) 442-0599
FOR IMMEDIATE RELEASE JULY 1, 1998 DECRANE AIRCRAFT HOLDINGS ACQUIRES DETTMERS INDUSTRIES INC., DESIGNER AND MANUFACTURER OF CORPORATE JET SEATING ACQUISITION HIGHLIGHTS: - STRENGTHENS PRODUCT OFFERINGS IN THE AIRCRAFT CABIN - INCREASES SALES TO EXISTING CLIENTS, INCLUDING DASSAULT/FALCON JET, BOMBARDIER AND THE MAJOR MODIFICATION CENTERS EL SEGUNDO, CA, JULY 1, 1998--DeCrane Aircraft Holdings, Inc. (NASDAQ: DAHX), a leading manufacturer of avionics components and an avionics systems integrator for the commercial and high-end corporate aircraft industry, today announced the acquisition of Dettmers Industries Inc., a Florida-based manufacturer of cabin interior products for the corporate jet market. DETTMERS--KEY PLAYER IN CABIN INTERIORS Dettmers Industries designs, manufactures and markets seating and other cabin interior products for the corporate aviation industry, particularly to aircraft completion centers. Dettmers is a certified FAA manufacturing and repair station, which expedites approvals and completion dates. Dettmers has been growing revenues in excess of 30% annually for the last three years, said DeCrane. "While several synergies have been identified in the sales and marketing areas, the real attractiveness of the company is the potential for several new seat designs that are currently coming to market. Therefore, the short-term focus of the new subsidiary will be to qualify these new seat designs," said DeCrane. "We believe the new motorized seat offered by Dettmers is among the finest available, and has the potential to dominate the high-end executive seating market for corporate jets," added DeCrane. "Dettmers has considerable expertise in making highly functional, motorized seating products for the corporate jet market," said DeCrane. "The recently obtained order for the executive seating on five new Boeing BBJ aircraft is evidence of the company's evolving status as one of the premier providers of executive seating products," said DeCrane. Dettmers sells its products to many of the same customers already serviced by DeCrane, including Dassault, Bombardier and the major modification centers. In addition to the obvious sales synergies, many of the products created by DeCrane's Audio International and Avtech subsidiaries will be highly complementary to Dettmers' product line, said DeCrane. Audio International produces sound and cabin management systems, including in-flight entertainment equipment, which is often housed in aircraft seating; Avtech makes audio, lighting, power, communications and control equipment. Dettmers will operate as a separate subsidiary of DeCrane. President Andrew Perl will report directly to Chuck Becker, DeCrane's President and Chief Operational Officer. Co-founder and Vice President of Product Development Peter Dettmers will continue in his role as the chief technology officer of the company. FITS DECRANE'S KEY ACQUISITION CRITERIA DeCrane said he believes Dettmers' product line takes the company another step forward by expanding the Company's product offerings for the high-end corporate jet market to include seating and other cabinet interior products. The industry is consolidating rapidly as the larger aircraft companies pare back the number of vendors they are willing to buy from, thus simplifying their purchasing operations. DeCrane is an industry leader in this consolidation movement, acquiring companies that fit its acquisition criteria. Generally speaking, DeCrane seeks companies that provide synergy with the existing product line or that give the company new capabilities. DeCrane's product line is well balanced and is used throughout the lifecycle of an aircraft (OEM, aftermarket and retrofit market). FORWARD LOOKING STATEMENTS Except for historical information contained herein, this document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that may cause the Company's actual results or outcomes to be materially different from those anticipated and discussed herein. Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by regulatory and other factors beyond the Company's control. Important factors that the Company believes might cause such differences are discussed in the cautionary statements accompanying the forward-looking statements in the Company's reports filed with the Securities and Exchange Commission. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in those filings with the Securities and Exchange Commission. DeCrane Aircraft Holdings, Inc. is a leading manufacturer of avionics components and a provider of avionics systems integration services in certain niche markets of the commercial aircraft and high-end corporate jet industries. The Company's products and services typically are utilized to provide an interface between an aircraft and its avionic systems. For more information about DeCrane Aircraft Holdings, Inc. via facsimile simply call 1-800-PRO-INFO and dial client code "DAHX". EX-99.4 7 AUDITED FINANCIAL STATEMENTS EXHIBIT 99.4 AVTECH CORPORATION INDEX TO FINANCIAL STATEMENTS
PAGE --------- Report of Independent Accountants........................................................................ 1 Balance Sheets as of September 30, 1996 and 1997 and March 31, 1998...................................... 2 Statements of Income for the years ended September 30, 1995, 1996 and 1997, the six months ended March 31, 1997 (unaudited) and the six months ended March 31, 1998........................................... 3 Statements of Stockholders' Equity for the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998............................................................................ 4 Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997, the six months ended March 31, 1997 (unaudited) and the six months ended March 31, 1998........................................... 5 Notes to Financial Statements............................................................................ 6
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Avtech Corporation In our opinion, the accompanying balance sheets and the related statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Avtech Corporation at September 30, 1996 and 1997 and March 31, 1998, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1997 and the six months ended March 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Los Angeles, California June 12, 1998 1 AVTECH CORPORATION BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, -------------------- MARCH 31, 1996 1997 1998 --------- --------- ----------- ASSETS Current assets Cash and cash equivalents.......................................................... $ 1,052 $ 4,136 $ 3,260 Accounts receivable, net of allowance for doubtful accounts of $20, $20 and $31 at September 30, 1996 and 1997 and March 31, 1998, respectively..................... 7,398 4,928 6,648 Inventories........................................................................ 4,233 5,254 5,684 Prepaid expenses and other assets.................................................. 69 183 224 Deferred income taxes.............................................................. -- 247 735 --------- --------- ----------- Total current assets............................................................. 12,752 14,748 16,551 --------- --------- ----------- Property, plant and equipment Land............................................................................... 431 791 791 Buildings and improvements......................................................... 2,411 4,685 4,967 Machinery and equipment............................................................ 2,764 3,005 3,378 Furniture, computer and other equipment............................................ 3,216 3,426 3,610 --------- --------- ----------- 8,822 11,907 12,746 Less: Accumulated depreciation..................................................... (6,523) (7,050) (7,335) --------- --------- ----------- 2,299 4,857 5,411 Other assets Patents, net of amortization....................................................... 5 4 4 Deferred income taxes.............................................................. -- 629 158 --------- --------- ----------- Total assets..................................................................... $ 15,056 $ 20,238 $ 22,124 --------- --------- ----------- --------- --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................................................... $ 768 $ 1,388 $ 1,614 Accrued expenses................................................................... 2,120 4,043 4,371 Deferred income taxes.............................................................. 389 -- -- --------- --------- ----------- Total current liabilities........................................................ 3,277 5,431 5,985 --------- --------- ----------- Long-term liabilities Deferred compensation.............................................................. 1,229 1,385 1,463 Other.............................................................................. 438 472 466 --------- --------- ----------- 1,667 1,857 1,929 --------- --------- ----------- Commitments and contingencies (Note 8)............................................... -- -- -- --------- --------- ----------- Stockholders' equity Common stock, no par value, 1,500,000 shares authorized; 323,541, 318,929 and 318,929 shares outstanding at September 30, 1996, 1997 and March 31, 1998, respectively..................................................................... 237 232 232 Retained earnings.................................................................. 9,875 12,718 13,978 --------- --------- ----------- 10,112 12,950 14,210 --------- --------- ----------- $ 15,056 $ 20,238 $ 22,124 --------- --------- ----------- --------- --------- -----------
The accompanying notes are an integral part of these financial statements. 2 AVTECH CORPORATION STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED MARCH YEAR ENDED SEPTEMBER 30, 31, ------------------------------- ---------------------- 1995 1996 1997 1998 --------- --------- --------- 1997 --------- ----------- (UNAUDITED) Sales.................................................... $ 21,020 $ 28,797 $ 32,619 $ 15,281 $ 20,391 Cost of sales............................................ 12,333 15,967 20,422 9,243 12,942 --------- --------- --------- ----------- --------- Gross profit......................................... 8,687 12,830 12,197 6,038 7,449 --------- --------- --------- ----------- --------- Operating expenses General and administrative............................. 1,991 1,992 2,758 1,269 1,387 Selling expenses....................................... 1,257 1,559 1,295 574 735 Research, development and engineering.................. 2,853 2,697 2,707 1,390 1,405 Employee stock ownership plan.......................... 1,200 1,000 1,200 600 600 Nonrecurring bonus..................................... -- -- -- -- 1,592 --------- --------- --------- ----------- --------- 7,301 7,248 7,960 3,833 5,719 --------- --------- --------- ----------- --------- Income from operations................................... 1,386 5,582 4,237 2,205 1,730 --------- --------- --------- ----------- --------- Other income (expense) Interest expense....................................... (8) (8) (6) -- -- Gain on disposal of equipment.......................... -- 14 -- -- -- Interest income........................................ 46 30 269 134 128 Rental income, net..................................... -- -- 32 -- 54 --------- --------- --------- ----------- --------- 38 36 295 134 182 --------- --------- --------- ----------- --------- Income before provision for federal income tax........... 1,424 5,618 4,532 2,339 1,912 Provision for federal income tax......................... 493 1,934 1,518 795 652 --------- --------- --------- ----------- --------- Net income............................................... $ 931 $ 3,684 $ 3,014 $ 1,544 $ 1,260 --------- --------- --------- ----------- --------- --------- --------- --------- ----------- ---------
The accompanying notes are an integral part of these financial statements. 3 AVTECH CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
STATED NUMBER OF VALUE OF SHARES COMMON RETAINED OUTSTANDING STOCK EARNINGS ----------- ----------- --------- Balance at September 30, 1994................................................... 323,541 $ 237 $ 5,260 Net income...................................................................... -- -- 931 ----------- ----- --------- Balance at September 30, 1995................................................... 323,541 237 6,191 Net income...................................................................... -- -- 3,684 ----------- ----- --------- Balance at September 30, 1996................................................... 323,541 237 9,875 Stock redemption................................................................ (4,612) (5) (171) Net income...................................................................... -- -- 3,014 ----------- ----- --------- Balance at September 30, 1997................................................... 318,929 232 12,718 Net income...................................................................... -- -- 1,260 ----------- ----- --------- Balance at March 31, 1998....................................................... 318,929 $ 232 $ 13,978 ----------- ----- --------- ----------- ----- ---------
The accompanying notes are an integral part of these financial statements. 4 AVTECH CORPORATION STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED MARCH YEAR ENDED SEPTEMBER 30, 31, ------------------------------- ---------------------- 1995 1996 1997 1997 1998 --------- --------- --------- ----------- --------- (UNAUDITED) Cash flows from operating activities Net income.............................................. $ 931 $ 3,684 $ 3,014 $ 1,544 $ 1,260 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization......................... 587 582 528 268 285 Gain on sale of property and equipment................ -- (14) -- -- -- Deferred income tax provision......................... 54 947 (1,265) (1,825) (17) Changes in assets and liabilities: Accounts receivable................................. (1,797) (2,990) 2,470 3,062 (1,720) Inventories......................................... (1,504) 198 (1,021) (825) (430) Prepaid and other current assets.................... 63 (20) (114) 17 (41) Accounts payable.................................... 400 (152) 620 777 226 Accrued expenses.................................... 1,620 (872) 2,153 2,141 422 --------- --------- --------- ----------- --------- Net cash provided by (used in) operating activities................................ 354 1,363 6,385 5,159 (15) --------- --------- --------- ----------- --------- Cash flows from investing activities Purchases of property and equipment..................... (735) (509) (3,085) (260) (839) Proceeds from sale of assets............................ -- 15 -- -- -- --------- --------- --------- ----------- --------- Net cash used in investing activities................. (735) (494) (3,085) (260) (839) --------- --------- --------- ----------- --------- Cash flows from financing activities Stock redemption........................................ -- -- (176) -- -- Capital lease obligations............................... (36) (36) (40) (20) (22) --------- --------- --------- ----------- --------- Net cash used in financing activities................................ (36) (36) (216) (20) (22) --------- --------- --------- ----------- --------- Net (decrease) increase in cash and equivalents............................................. (417) 833 3,084 4,879 (876) Cash and equivalents at beginning of the period........................................... 636 219 1,052 1,052 4,136 --------- --------- --------- ----------- --------- Cash and equivalents at end of the period.............................................. $ 219 $ 1,052 $ 4,136 $ 5,931 $ 3,260 --------- --------- --------- ----------- --------- --------- --------- --------- ----------- ---------
The accompanying notes are an integral part of these financial statements. 5 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE COMPANY Avtech Corporation (the Company) is a custom design and manufacturing firm established in 1963 to produce high-quality equipment for the aircraft industry. In 1970, Avtech began to produce engineered products and has since focused its engineering and product development efforts on responding to specifications from original equipment aircraft manufacturers (OEMs). The Company's products fall into five main categories: 1. Aircraft communication control equipment (including audio control units, multiplexed audio systems and audio amplifiers). 2. Aircraft lighting controls (including ballasts, dimmers and flood lighting). 3. Power systems (including transformer rectifier units, power inverters and battery chargers). 4. Airborne facsimile terminals (AvFax). 5. Special products (including PDX intercoms, liquid-gauging and fill control, and frequency units). FINANCIAL STATEMENT PRESENTATION The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At September 30, 1996 and 1997 and March 31, 1998, the Company maintained $549,000, $119,000 and $868,000 respectively, of its cash and cash equivalents balances at one bank. At September 30, 1996 and 1997 and March 31, 1998, the Company maintained $503,000, $4,017,000 and $2,392,000, respectively, in a money market fund and bankers' acceptances. RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK Accounts receivable from trade customers are generally due within thirty days. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. All of the Company's sales are to businesses directly associated with the aviation industry (airlines, aircraft manufacturers, etc.). Approximately 70% of the Company's sales are to customers based in the United States. 6 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT The cost of property, plant and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line and accelerated methods over the following estimated lives:
YEARS --------- Buildings............................................................................. 20-39 Building improvements................................................................. 10-39 Machinery and equipment............................................................... 5 Furniture, computer and other equipment............................................... 5-7
Maintenance and repairs are charged to operations when incurred. Additions and improvements are capitalized. When property, plant and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. INVENTORIES Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Costs of manufactured inventories include all direct materials, labor and an allocation of overhead. Market represents the lower of replacement cost or estimated net realizable value. REVENUE RECOGNITION Revenues from the sale of manufactured products are recorded when shipped. Reimbursements for nonrecurring engineering costs, which are expensed as incurred, are included in revenues at the time a negotiated settlement is reached with the customer. The Company's nonrecurring engineering revenues for the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998 were $1,257,000, $4,042,000, $527,000 and $138,000, respectively. Included within accounts receivable at September 30, 1996 are $3,384,000 of unbilled receivables which were collected in fiscal year 1997. INCOME TAXES Deferred income taxes are determined using the liability method. A deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in the asset and/or liability for deferred taxes. STOCK OPTION PLAN As permitted under Statement of Financial Accounting Standards No., 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company measures compensation expense related to the employee stock option plan utilizing the intrinsic value method as prescribed by Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees". 7 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCRUED WARRANTIES The Company sells a majority of its products to customers along with various repair or replacement warranties. The terms of the warranties vary according to the customer and/or the product involved. The most common warranty period is the earlier of: a. 36 months from the date of delivery to the operator, or; b. 42 months from the date of manufacture Provisions for estimated future warranty costs are made in the period corresponding to the sale of the product. Classification between short and long-term warranty obligations is estimated based on historical trends. UNAUDITED INTERIM RESULTS The financial information for the six months ended March 31, 1997 is unaudited. In the opinion of the Company, the unaudited financial information is presented on a basis consistent with the audited financial statements and contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim period. The results of operations for the interim periods are not necessarily indicative of results of operations for the full year. NOTE 2 - INVENTORIES Inventories at September 30, 1996 and 1997 and March 31, 1998 consist of the following (amounts in thousands):
SEPTEMBER 30, -------------------- MARCH 31, 1996 1997 1998 --------- --------- ----------- Raw materials and components....................................................... $ 2,488 $ 2,617 $ 3,427 Work in process.................................................................... 1,285 2,014 1,754 Finished goods..................................................................... 460 623 503 --------- --------- ----------- $ 4,233 $ 5,254 $ 5,684 --------- --------- ----------- --------- --------- -----------
NOTE 3 - PROPERTY AND EQUIPMENT The Company owns property located immediately adjacent to its main facility. The property is not currently used for any rental or productive activity. In 1990, the property was condemned by the local authorities and is considered unsuitable for habitation in its current state. The current carrying value of $62,000 represents the original cost of the land and is lower than its estimated net realizable value. In 1997, the Company purchased a 20,275 square foot office building and an adjacent vacant lot for investment purposes. The net book value of the property was $2,134,000 and $2,098,000 at September 30, 1997 and March 31, 1998, respectively. The Company leases the office space to tenants under one to three- 8 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED) year noncancelable operating leases. At March 31, 1998, the building was fully occupied. Minimum future rentals to be received on noncancelable leases are as follows (amounts in thousands):
YEAR ENDING SEPTEMBER 30, - ------------------------------------------------------------------ 1998.............................................................. $ 128 1999.............................................................. $ 20
The Company leases equipment under a five-year lease term. Based on the provisions of Statement No. 13, issued by the Financial Accounting Standards Board, these leases meet the criteria of capital leases and, accordingly, have been recorded as such. These assets are stated on the balance sheet at their capitalized cost of $194,000. Depreciation of $172,000 has been recognized through March 31, 1998. The present value of remaining minimum lease payments at March 31, 1998 was approximately $25,000. NOTE 4 - ACCRUED EXPENSES Accrued expenses at September 30, 1996 and 1997 and March 31, 1998 consist of the following (amounts in thousands):
SEPTEMBER 30, -------------------- MARCH 31, 1996 1997 1998 --------- --------- ----------- Employee compensation and related taxes............................................ $ 875 $ 2,556 $ 3,531 Employee stock option plan contribution............................................ 1,000 1,200 600 Current portion of warranty reserve................................................ 204 240 240 Other.............................................................................. 41 47 -- --------- --------- ----------- $ 2,120 $ 4,043 $ 4,371 --------- --------- ----------- --------- --------- -----------
NOTE 5 - DEFINED CONTRIBUTION PLANS The Company sponsors an employee stock ownership plan (ESOP) for the benefit of employees with twelve or more months of continuous service. Contributions are made to the plan at the discretion of the Company's Board of Directors. The Company's contributions for the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998 were $1,200,000, $1,000,000, $1,200,000 and $600,000, respectively. The Company also sponsors a cash or deferred compensation (401k) plan for the benefit of eligible employees. Under the plan, employees may elect to defer a portion of their compensation (subject to statutory limitations). Discretionary contributions by the Company may be made when authorized by the Board of Directors. No such contributions were made during the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998. 9 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - FEDERAL INCOME TAXES The provision (benefit) for federal income taxes is comprised of the following (amounts in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------- SIX MONTHS ENDED 1995 1996 1997 MARCH 31, 1998 --------- --------- --------- ------------------- Current............................................................ $ 439 $ 987 $ 2,783 $ 669 Deferred........................................................... 54 947 (1,265) (17) --------- --------- --------- ----- $ 493 $ 1,934 $ 1,518 $ 652 --------- --------- --------- ----- --------- --------- --------- -----
The provision for federal income tax expense approximates the federal statutory rate for all periods presented. The Company is not required to pay state income taxes. Deferred tax assets and liabilities at September 30, 1996 and 1997 and March 31, 1998 include the following (amounts in thousands):
SEPTEMBER 30, -------------------- MARCH 31, 1996 1997 1998 --------- --------- ----------- DEFERRED TAX ASSETS Reserves............................................................................ $ 335 $ 393 $ 382 Compensatory stock options.......................................................... 416 471 498 Capitalized inventories............................................................. 10 12 13 --------- --------- ----- 761 876 893 DEFERRED TAX LIABILITIES Deferred revenue.................................................................... (1,150) -- -- --------- --------- ----- $ (389) $ 876 $ 893 --------- --------- ----- --------- --------- -----
The classification in the balance sheet between current and noncurrent deferred tax assets is based on the classification of the related asset that gives rise to the temporary difference. A deferred tax asset that is not related to an asset is classified according to the expected reversal date of the temporary difference. NOTE 7 - COMMITMENTS AND CONTINGENCIES PURCHASE COMMITMENTS The Company has commitments based on open purchase orders arising out of its normal business operations. As of September 30, 1996 and 1997 and March 31, 1998, these commitments were $5,080,000, $6,760,000 and $9,151,000, respectively. TERMINATION FOR CONVENIENCE CLAUSES The Company routinely enters into contractual commitments with customers to design and manufacture parts. These contracts contain "termination for convenience" clauses that permit recovery of costs incurred by the Company if the customer terminates the contract prior to its completion. These recoveries are included in sales when billed. 10 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED) LEASING ARRANGEMENTS The Company leases a building under a five-year operating lease. The lease calls for monthly payments of $5,000 plus utilities, taxes and maintenance and expires in April 2001. The lessor has the right to terminate the lease at anytime by giving the Company at least twelve months written notice. The Company subleases a portion of its facilities under an operating lease that expires December 1998. The following is net rental expense under operating leases for the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998 (amounts in thousands):
SIX YEAR ENDED SEPTEMBER 30, MONTHS ENDED ------------------------------- MARCH 31, 1995 1996 1997 1998 --------- --------- --------- ------------- Rent expense.................................................................. $ 60 $ 60 $ 60 $ 30 Less: Sublease rentals........................................................ (7) (11) (10) (5) --- --- --- --- $ 53 $ 49 $ 50 $ 25 --- --- --- --- --- --- --- ---
The following is a schedule by years of the future minimum rentals under this lease (amounts in thousands):
YEAR ENDING SEPTEMBER 30, LESSEE SUBLEASE NET - ------------------------------------------------------------------- ----------- ----------- --------- 1998........................................................... $ 60 $ 10 $ 50 1999........................................................... 60 11 49 2000........................................................... 60 11 49 2001........................................................... 60 11 49 ----- --- --------- $ 240 $ 43 $ 197 ----- --- --------- ----- --- ---------
NOTE 8 - ECONOMIC DEPENDENCE A material part of the Company's business is dependent on one customer, the loss of which could have a material effect on the Company. For the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998, approximately 29.5%, 24%, 46.9% and 41.7%, respectively, of revenues were attributable to this customer. At September 30, 1996 and 1997 and March 31, 1998, accounts receivable from this customer represented approximately 41.1%, 23.4% and 30%, respectively, of total accounts receivable. NOTE 9 - STOCK OPTION PLANS Prior to 1993, the Company implemented a nonqualified compensatory stock option plan with the President. Under this Plan, options to purchase 90,000 shares of the Company's stock were granted at an option price of $2.70 per share. These options are currently exercisable by the President. During the year ended September 30, 1994, the Company and three key employees entered into employment contracts which voided all prior compensatory stock option plans other than that of the President's. Under these new contracts, the Company granted 20,000 shares to each of the three employees at an exercise price of $15 per share. Fair market value was $28 per share at the date of the grant. Each 11 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTION PLANS (CONTINUED) employee still employed at September 30, 1998, is entitled to exercise his option to purchase 20,000 fully vested shares. Accordingly, the Company has expensed $156,000 during each of the years ended September 30, 1995, 1996 and 1997 and $78,000 for the six months ended March 31, 1998. These shares, when exercised, cannot be sold until September 30, 2003. The Company has the first right to purchase the shares upon exercise but is not obligated to do so. The accumulated expense resulting from the difference between the exercise prices and fair market values at the respective date of grant has been classified as a long-term liability in deferred compensation. NOTE 10 - ADDITIONAL CASH FLOW INFORMATION Supplementary cash flow information for the years ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998 is as follows (amounts in thousands):
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED --------------------------------- MARCH 31, 1995 1996 1997 1998 ----- --------- --------- ------------------- Cash paid during the period for: Capital leases..................................................... $ 36 $ 36 $ 40 $ 22 --- --------- --------- ----- --- --------- --------- ----- Interest........................................................... $ 10 $ 7 $ 5 $ 1 --- --------- --------- ----- --- --------- --------- ----- Income taxes....................................................... $ -- $ 1,449 $ 2,900 $ 693 --- --------- --------- ----- --- --------- --------- -----
NOTE 11 - SUBSEQUENT EVENT In May 1998, the Company signed a definitive purchase agreement whereby all of the outstanding shares of the Company would be acquired by DeCrane Aircraft Holdings, Inc. The transaction is expected to close by June 30, 1998. The effect of the transaction has not been reflected in the accompanying accounts. 12 EX-99.5 8 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA EXHIBIT 99.5 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The Unaudited Pro Forma Consolidated Financial Data presents the following pro forma data for the Company: (i) the results of operations for the year ended December 31, 1997 and the three months ended March 31, 1998; and (ii) the financial position as of March 31, 1998. The Unaudited Pro Forma Consolidated Financial Data should be read in conjunction with the Company's: (i) audited consolidated financial statements and notes thereto included in the Form 10-K for the year ended December 31, 1997; and (ii) unaudited consolidated financial statements and notes thereto included in the Form 10-Q for the quarter ended March 31, 1998. Capitalized terms, unless defined herein, have the meaning ascribed to them in the aforementioned Forms 10-K and 10-Q. The following Unaudited Pro Forma Consolidated Financial Data for the year ended December 31, 1997 and the three months ended March 31, 1998 presents the results of operations of the Company as if the following transactions had occurred as of January 1, 1997: (i) the acquisition of Avtech Corporation ("Avtech") for $84.7 million in cash, including an estimated $1.3 million of acquisition related costs; (ii) the Audio International acquisition, which occurred on November 14, 1997 as described in the Company's Form 10-K; (iii) the Recapitalization, the IPO, and the application of the net proceeds therefrom, which were completed on April 16, 1997 as described in the Company's Form 10-K; and (iv) the sale of 2,206,177 shares of common stock, and the application of the net proceeds therefrom, which was completed in April 1998 (the "Follow-On Equity Offering"), as described in the Company's Form 10-Q. The balance sheet data as of March 31, 1998 is adjusted to reflect the following transactions as if they occurred on March 31, 1998: (i) the Avtech acquisition; and (ii) the Company's Follow-On Equity Offering and the application of the net proceeds therefrom. The data does not include the acquisition of Dettmers Industries Inc. ("Dettmers") because inclusion would not have a material effect on such data. The Unaudited Pro Forma Consolidated Financial Data presenting the results of operations for the year ended December 31, 1997 reflects the unaudited consolidated financial statements of Audio International for the period from January 1, 1997 through November 14, 1997, the date on which it was acquired. The Avtech results of operations data for all periods is unaudited and was derived from audited and unaudited financial statements as of and for the appropriate periods since it was not acquired until June 26, 1998. Avtech's fiscal year end, prior to its acquisition by the Company, was September 30th. The balance sheet of Avtech as of March 31, 1998 was derived from its audited financial statements for the six months ended March 31, 1998. The Company believes the Unaudited Pro Forma Consolidated Financial Data contains all adjustments necessary for a fair presentation of the above described transactions. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. With respect to the Avtech pro forma acquisition adjustments described in the accompanying notes, the allocation of the purchase price is preliminary and subject to final determination by the Company. The Unaudited Pro Forma Consolidated Financial Data is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have occurred had the transactions been consummated on the dates indicated, or that may be obtained in future periods. 1 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
ACQUISITIONS ACQUISITIONS, DECRANE -------------------------- IPO AND AIRCRAFT AUDIO FOLLOW-ON HOLDINGS, INTERNATIONAL, AVTECH EQUITY OFFERING INC. INC. CORPORATION ADJUSTMENTS PRO FORMA --------- ------------- ----------- --------------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.............................................. $ 108,903 $ 12,431 $ 34,689 $ (252)(2) $ 155,771 Cost of sales......................................... 80,247 7,345 22,396 (139)(3) 109,849 --------- ------------- ----------- ------- ----------- Gross profit (loss)................................... 28,656 5,086 12,293 (113) 45,922 Selling, general and administrative expenses.......... 15,756 3,983 7,036 (1,503)(4) 25,272 ESOP contribution..................................... -- -- 1,200 (1,200)(5) -- Nonrecurring bonus expense............................ -- -- -- -- -- Amortization of intangible assets..................... 905 -- -- 2,599(7) 3,504 --------- ------------- ----------- ------- ----------- Operating income...................................... 11,995 1,103 4,057 (9) 17,146 Interest expense (income)............................. 3,154 8 (305) 4,939(8) 7,796 Other expenses (income)............................... 243 5 (59) -- 189 --------- ------------- ----------- ------- ----------- Income (loss) before provision for income taxes and extraordinary item.................................. 8,598 1,090 4,421 (4,948) 9,161 Provision for income taxes (benefit).................. 3,344 365 1,487 (797)(9) 4,399 --------- ------------- ----------- ------- ----------- Income (loss) before extraordinary item (1)........... $ 5,254 $ 725 $ 2,934 $ (4,151) $ 4,762 --------- ------------- ----------- ------- ----------- --------- ------------- ----------- ------- ----------- Income (loss) applicable to common stockholders (1).................................... $ 2,609 $ 725 $ 2,934 $ (1,506)(10) $ 4,762 --------- ------------- ----------- ------- ----------- --------- ------------- ----------- ------- ----------- Income (loss) per common share (1) Basic............................................... $ 0.69 $ 0.63 Diluted............................................. 0.62 0.61 Weighted average number of common shares outstanding Basic............................................. 3,803 7,510 Diluted........................................... 4,892 7,812
The accompanying notes are an integral part of the Unaudited Pro Forma Consolidated Financial Data. 2 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998
ACQUISITION AND DECRANE ACQUISITION FOLLOW-ON AIRCRAFT ----------- EQUITY HOLDINGS, AVTECH OFFERING INC. CORPORATION ADJUSTMENTS PRO FORMA ----------- ----------- -------------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.................................................... $ 29,128 $ 10,741 $ (62)(2) $ 39,807 Cost of sales............................................... 20,141 6,448 (49)(3) 26,540 ----------- ----------- ------- ----------- Gross profit (loss)......................................... 8,987 4,293 (13) 13,267 Selling, general and administrative expenses................ 4,879 1,699 (463)(4) 6,115 ESOP contribution........................................... -- 300 (300)(5) -- Nonrecurring bonus expense.................................. -- 1,592 (1,592)(6) -- Amortization of intangible assets........................... 379 -- 503(7) 882 ----------- ----------- ------- ----------- Operating income............................................ 3,729 702 1,839 6,270 Interest expense (income)................................... 786 (19) 1,141(8) 1,908 Other income................................................ (17) (27) -- (44) ----------- ----------- ------- ----------- Income (loss) before provision for income taxes............. 2,960 748 698 4,406 Provision for income taxes (benefit)........................ 1,272 256 408(9) 1,936 ----------- ----------- ------- ----------- Net income (loss)........................................... $ 1,688 $ 492 $ 290 $ 2,470 ----------- ----------- ------- ----------- ----------- ----------- ------- ----------- Income (loss) per common share(1) Basic................................................... $ 0.32 $ 0.33 Diluted................................................. 0.30 0.32 Weighted average number of common shares outstanding Basic................................................... 5,319 7,525 Diluted................................................. 5,626 7,832
The accompanying notes are an integral part of the Unaudited Pro Forma Consolidated Financial Data. 3 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1998
DECRANE FOLLOW-ON ACQUISITION AIRCRAFT EQUITY ------------------------ HOLDINGS, OFFERING AVTECH ACQUISITION INC. ADJUSTMENTS CORPORATION ADJUSTMENTS PRO FORMA ---------- ----------- ----------- ----------- ----------- (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents....................... $ 1,178 $ -- $ 3,260 $ (2,167) 14) $ 2,271 Accounts receivable, net........................ 19,839 -- 6,648 -- 26,487 Inventories..................................... 28,221 -- 5,684 -- 33,905 Income taxes refundable......................... -- -- -- 3,561(15) 3,561 Deferred tax assets............................. -- -- 735 1,425(16) 2,160 Prepaid expenses and other current assets....... 1,160 -- 224 -- 1,384 ---------- ----------- ----------- ----------- ----------- Total current assets.......................... 50,398 -- 16,551 2,819 69,768 Property and equipment, net....................... 13,261 -- 5,411 4,710(17) 23,382 Other assets, principally intangibles, net........ 39,940 (358) 11) 162 62,742(18) 102,486 ---------- ----------- ----------- ----------- ----------- $ 103,599 $ (358) $ 22,124 $ 70,271 $ 195,636 ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings........................... $ 432 $ -- $ -- $ -- $ 432 Current portion of long-term obligations........ 857 -- -- -- 857 Accounts payable................................ 7,991 -- 1,614 -- 9,605 Accrued expenses................................ 6,226 -- 4,371 (600) 19) 9,997 Income taxes payable............................ 1,800 -- -- -- 1,800 ---------- ----------- ----------- ----------- ----------- Total current liabilities..................... 17,306 -- 5,985 (600) 22,691 ---------- ----------- ----------- ----------- ----------- Long-term liabilities Long-term obligations........................... 43,196 (35,200) 12) -- 84,943(20) 92,939 Deferred income taxes........................... 1,880 -- -- 1,601(21) 3,481 Deferred compensation........................... -- -- 1,463 (1,463) 22) -- Minority interest and other long-term liabilities................................... 93 -- 466 -- 559 ---------- ----------- ----------- ----------- ----------- Total long-term liabilities................... 45,169 (35,200) 1,929 85,081 96,979 ---------- ----------- ----------- ----------- ----------- Stockholders' equity Common stock.................................... 53 22(13) 232 (232) 23) 75 Additional paid-in capital...................... 51,096 34,820(13) -- -- 85,916 Retained earnings (deficit)..................... (9,756) -- 13,978 (13,978) 23) (9,756) Accumulated other comprehensive income........................................ (269) -- -- -- (269) ---------- ----------- ----------- ----------- ----------- Total stockholders' equity.................... 41,124 34,842 14,210 (14,210) 75,966 ---------- ----------- ----------- ----------- ----------- $ 103,599 $ (358) $ 22,124 $ 70,271 $ 195,636 ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the Unaudited Pro Forma Consolidated Financial Data. 4 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1998 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (1) Reflects income (loss) before the effect of a $2.1 million extraordinary loss incurred as a result of the write-off, net of an income tax benefit, of deferred financing costs, unamortized original issue discounts, a prepayment penalty and other related expenses incurred as a result of the repayment of debt by the Company with the net proceeds from its IPO. See the consolidated financial statements and related notes thereto included in the Company's Form 10-K. (2) Reflects the elimination of intercompany sales between the Company and Avtech. (3) For the year ended December 31, 1997 and the three months ended March 31, 1998, reflects the elimination of intercompany cost of sales aggregating $252,000 and $62,000, respectively, between the Company and Avtech, offset by an increase in depreciation expense to reflect an increase in the fair value of depreciable assets acquired. (4) For the year ended December 31, 1997 and the three months ended March 31, 1998, reflects a decrease of $1.5 million and $467,000, respectively, in compensation expense to reflect the resignation of certain former employees and changes to employment agreements for certain remaining employees of the acquired companies offset by an increase in depreciation expense to reflect an increase in the fair value of depreciable assets acquired. (5) Reflects a reduction in expense attributable to the termination of Avtech's Employee Stock Ownership Plan ("ESOP") concurrent with the acquisition. (6) Reflects a reduction in expense attributable to nonrecurring bonuses awarded prior to, and in anticipation of, the acquisition by the Company. (7) For the year ended December 31, 1997 and the three months ended March 31, 1998, reflects an increase in amortization expense pertaining to the amortization of goodwill on a straight-line basis over 30 years of (i) $20.1 million of goodwill related to the Audio International acquisition, which occurred on November 14, 1997; and (ii) $60.4 million of goodwill related to the Avtech acquisition, which occurred on June 26, 1998. (8) For the year ended December 31, 1997, represents: (i) a decrease in interest expense of $1.3 million to reflect the refinancing of existing debt with the $28.9 million net proceeds from the IPO and $12.3 million Senior Credit Facility borrowings; and (ii) a net increase in Senior Credit Facility interest expense of $6.3 million to reflect borrowings of $24.7 and $84.7 million for Audio International and Avtech acquisitions, respectively, net of the application of the $34.8 million net proceeds from the Follow-On Equity Offering to reduce Senior Credit Facility borrowings. For the three months ended March 31, 1998, represents a net increase in Senior Credit Facility interest expense of $1.1 million to reflect borrowings of $84.7 million for Avtech acquisition, net of the application of the $34.8 million net proceeds from the Follow-On Equity Offering to reduce Senior Credit Facility borrowings. (9) Represents a decrease in the provision for income taxes as a result of a decrease in pro forma taxable income. The percent decrease differs from the amount expected by applying the U.S. federal statutory rate due to depreciation and amortization not deductible for income tax purposes. 5 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (10) Reflects the elimination of preferred stock dividends and adjustment to the redemption value of mandatorily redeemable common stock warrants as a result of the Recapitalization and IPO. See the consolidated financial statements and related notes thereto included in the Company's Form 10-K. (11) Reflects the reclassification of capitalized costs associated with the Follow-On Equity Offering to additional paid-in capital as reduction of the net proceeds received therefrom. (12) Reflects the repayment of Senior Credit Facility borrowings with the net proceeds from the Follow-On Equity Offering. (13) Reflects the sale by the Company of common stock in the Follow-On Equity Offering. (14) Reflects a decrease in cash to adjust to the actual cash balance acquired upon closing. (15) Reflects federal income taxes refundable as a result of a tax deduction created upon the exercise of stock options by former Avtech employees immediately prior to its acquisition by the Company. The stock option exercise created a $25.4 million tax deduction for Avtech immediately prior to its acquisition. The tax deduction may be used for both carryback and carryforward purposes to reduce Avtech's taxable income. The carryforward will expire in 2013. (16) Reflects the incremental deferred income tax benefit the Company estimates it will receive during the next twelve-month period as a result of utilizing the loss carryforward created upon the exercise of stock options by former Avtech employees immediately prior to its acquisition by the Company. (17) Reflects a $3.4 million and $1.3 million increase in the fair value of land and buildings, respectively, acquired in the Avtech acquisition. (18) Reflects: (i) $60.4 million of goodwill attributable to the Avtech acquisition; (ii) a $2.2 million long-term deferred income tax asset the Company estimates it will realize as a result of utilizing the loss carryforward created upon the exercise of stock options by former Avtech employees immediately prior to its acquisition by the Company; and (iii) $250,000 of Senior Credit Facility deferred financing costs associated with amendment fees and expenses to provide financing for the Avtech acquisition. (19) Reflects the elimination of Avtech's accrued ESOP contribution liability paid by Avtech prior to its acquisition by the Company. (20) Reflects Senior Credit Facility borrowings of $84.7 million to fund the Avtech acquisition and $250,000 for Senior Credit Facility deferred financing costs. (21) Reflects the deferred tax liability resulting from the $4.7 million increase in the fair value of land and buildings acquired in the Avtech acquisition that is not deductible for income tax purposes. (22) Reflects the elimination of Avtech's deferred compensation liability paid by Avtech prior to its acquisition by the Company. (23) Reflects the elimination of Avtech's common stock and retained earnings upon acquisition by the Company. 6 -----END PRIVACY-ENHANCED MESSAGE-----